News: March 2013
Budget 2013: Employers
The big news for employers is a new Employment Allowance of £2,000 per year for all businesses and charities to offset against the cost of employer’s class 1 NI contributions. This should provide a real reduction in the cost of employing workers by all types of businesses – not just new employees taken on by new businesses. The new employment allowance will reduce employer’s NICs paid after 5 April 2014.
NI rates 2013/14
For 2013/14 the main rates and thresholds for NI contributions are:
Lower Earnings Limit (LEL) for Class 1 NICs – £109/week
Employer’s class 1 above £148/week not contracted out – 13.8%
Employee’s class 1 not contracted out from £149 to £797/week – 12%
Employee’s additional class 1 above £797/week – 2%
Self-employed small earnings exemption – £5,725 per annum
Self-employed class 4 from £7,755 to £41,450 per annum – 9%
Self-employed class 4 additional rate above £41,450 per annum – 2%
Self-employed class 2 – £2.70 per week
Voluntary contributions class 3 – £13.55 per week
Contracted out rates for NI are 10.6% for employees and 10.4% for employers, but those reduced rates only apply for members of salary-related pension schemes. All contracted out rates will cease in April 2016, when the new flat rate state pension comes into effect.
Employee share schemes can be incredibly complex to set up and administer. However, the Government believes employee involvement in the companies they work for is a good thing, and employees owning shares in their employing company is the way to achieve this.
– Employee shareholder status. A new type of share scheme will permit employees to take up shares offered by their employer, in return for giving up certain employment rights such as the right to statutory redundancy pay. Normally an employee is taxed on shares received, like salary, but the first £2,000 of shares awarded to the employee under this scheme will be tax and NI free. The employer will be able to give up to £50,000 of shares to each employee, but any value of shares above £2,000 will be immediately taxable and subject to NICs.
When the employee sells those shares any gains they make will be tax free, even if the employee has taken up the full quota of £50,000 of shares initially. The company will be able to claim tax relief on the value of shares given to employees. This new scheme is due to apply for shares provided on and after 1 September 2013.
– EMI shares. The Enterprise Management Incentive scheme (EMI) is an existing share scheme that allows smaller companies to award up to £250,000 of share options to key employees. The shares are not tax free on disposal, but employees can now qualify for entrepreneurs’ relief which applies a tax rate of 10% on any taxable gains made on the EMI shares. The employee must still work for the company at the time he sells the EMI shares and must have held those shares for at least one year.
That last condition can cause a problem, as the employee usually holds the EMI share options and sells the actual EMI shares as soon as they are acquired. The law will now be changed to allow the period of holding EMI share options to count as a period of holding the EMI shares. Also, if the company is taken over or re-organises its shares, any shares acquired in exchange for EMI shares count as if they were EMI shares.
– Other share schemes. Other tax advantaged share schemes normally have to be individually approved by HMRC, but the Government has proposed that employers will be able to self-certify share schemes from 2014. This will make it easier for companies to set up a share scheme for their employees.
Loans to Employees
Employees who take an interest-free or low-interest loan from their employer are treated as receiving a taxable benefit if the loan exceeds £5,000 at any point in the tax year. This threshold will rise to £10,000 from 6 April 2014. This increase is designed to allow employees take loans to buy annual rail tickets, which now exceed £5,000 in many areas, although applies to loans for any purpose.
The rules for loans made to company owners have been tightened up – see loans to participators in Business Taxes.