Employee incentives - Budget announcements

United Kingdom

In this week’s Budget, the main news for employee incentives is that the Government has confirmed that it is proposing to continue with the Enterprise Management Incentive (EMI) scheme.

EMI

EMI share options can be granted by SMEs over up to £250,000 of shares per employee, with exercise gains subject to capital gains tax at 10% under the Entrepreneurs’ Relief provisions. It is the most favourable share scheme available. Not only does the employee have the potential to make large low-tax gains, but companies can also receive tax relief on the gains made and so save corporation tax too.

Strictly, all that the Government has announced is that it is seeking State Aid approval from relevant European authorities for the continuation of the scheme beyond 2018 (which may or may not be relevant depending on the ultimate European settlement reached). However, the fact that the Government is doing this at all clearly shows that it wishes to continue the scheme beyond 2018, which will be popular as the EMI scheme has spread share scheme benefits among small companies in an unprecedented way though there may be some changes made by the Government (or even some changes demanded – potentially even ending the scheme - by European authorities).

Dividends

The Government has also announced that the tax-free dividend allowance will fall from £5,000 to £2,000 from April 2018. This will affect participants with large shareholdings (whether in or outside SIPs) and will need to be drawn to their attention in due course.

Other related developments

The Government has also confirmed that the already announced:

  • changes to salary sacrifice and cash alternative arrangements for benefits (so-called optional remuneration arrangements) will take effect on 6 April 2017 and
  • changes to termination payments will take effect on 6 April 2018 (including abolishing foreign service relief).

There is disappointingly no announcement of any concessions on the changes being made for optional remuneration arrangements, but further details may emerge in the Finance Bill which is expected on 20 March and which forms the next relevant stage in the legislative process.