You’ve heard the Chancellor’s recent budget 2009 and it’s all looking a bit grey for the future. Income tax increases are projected and will be brought into effect in stages so that the Government can recoup some of the money it has ploughed into the economy. If you’re earning six figures, the news is very bad. Because national insurance (NICs) rates are also scheduled to go up (albeit) in 2011/2012, even if you’re not earning six figures the news is still bad. And whilst individuals will have to pay more NIC, the employer company also faces a rise in NICs too! So the overall tax “take” and NICs receipts may well increase.

So what can you do to preserve net salaries and are there any loopholes left?

Well, there are only limited steps that individuals or employers can take to mitigate the income tax/NICs increases. One way is to adopt an approach that targets paying remuneration in a tax-efficient manner, focussing on particular types of remuneration. This note looks at share incentive schemes (and particularly share options).

Share option schemes have long been a favoured form of remuneration from a tax perspective. If it is possible for a company to fit within certain statutory rules, employees could see themselves remunerated without having to pay income tax or NICs. On the other side of the coin, and provided certain requirements are met, employers can also save their portion of the NICs and even reduce their profits for corporation tax purposes. So both sides of the employer-employee relationship can benefit with the blessing of HMRC.

There are detailed regulations dealing with how the above can be achieved but we are here to demystify the jargon and to guide you through the complexities of setting up a scheme that has clear objectives and delivers what it promises.

It should be stressed that this note is intended as a general update only and further legal advice should be sought on the matters raised.

Posted: April 30th, 2009 under Corporate Finance, Employment/HR.
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