Employee incentives aspects of the Autumn Statement

The Chancellor of the Exchequer yesterday delivered his Autumn Statement (which used to be known as the Pre-Budget Report).

After successive years of announcements of significant anti-avoidance or structural changes, there are no notable employee share schemes amendments proposed to the relevant UK tax system this year. Given the considerable changes in recent years, which have been liberating and disruptive in equal measure, it is difficult not to feel a sense of relief!

The main reason that there are no changes is because the Government has announced that it will not be implementing:

• a new “employee shareholder vehicle” which was designed to be a simpler and fully tax-protected version of an employee trust
• changes which would have meant that employees mainly in private companies would not face income tax and National Insurance charges until the shares they had received had become “marketable”
• further changes to the close company shareholder loans regime.

While its full reasons will emerge in papers to be published shortly, it seems likely that the Revenue’s need for complicated anti-avoidance provisions and the fact that the proposals did not materially improve on practitioners’ existing devices and workarounds both conspired to make the new employee shareholder vehicle and marketable security concepts just too complicated to implement on a worthwhile basis. However, it also means that company funding for private company employee trusts will remain difficult/expensive.

The other area in which there has been no announcement is “geared growth” arrangements. We understand the Revenue had been looking at this in its various forms – growth shares, flowering shares, ratchets, carried interest, JSOPs – all of which enjoy the more favourable capital gains tax regime rather than income tax treatment. Many companies, in particular private companies, have been implementing such arrangements in recent years. Here, however, no news is undoubtedly good news as the status quo is satisfactory. Perhaps this is an area which is just too difficult to tackle.

Companies should, however, be preparing for the implementation from April 2015 of the major change for expat taxation of employee share plans so that they are taxed like cash. The legislation is already on the statute books for this, although we await the final NIC rules.

In conclusion, while there have been surprises before when actual draft legislation emerges, at least this part of the process looks like time off for employee share arrangements, though a change of Government in May could mean major changes lie shortly round the corner.