Employee Incentives Update | September 2022
Published on 26th Sep 2022
This edition reports on the UK chancellor's improvements to the tax-advantaged company share option plan and other recent developments
Welcome to the latest edition of the Employee Incentives Update. We report on the new UK chancellor's first fiscal event and The Growth Plan 2022 (including improvements to the tax-advantaged company share option plan), updates to HMRC guidance and practice, and the Office of Tax Simplification's review of hybrid and distance working. We also cover recent developments in Belgium.
The Growth Plan 2022 | Emergency fiscal event announces a package of tax cutting measures
The UK chancellor, Kwasi Kwarteng, delivered his first fiscal event on 23 September 2022 alongside presenting HM Treasury's The Growth Plan 2022 to Parliament.
The chancellor reconfirmed that the government will reverse the 1.25 percentage point rise in National Insurance contributions (NICs) from 6 November 2022. The government has also confirmed that the new Health and Social Care Levy (which was expected to be introduced in April 2023) will also be cancelled.
The growth plan brings forward the scheduled cut to the basic rate of income tax (from 20% to 19%) to April 2023, which is 12 months earlier than planned, Surprisingly, the chancellor also announced that the additional rate of income tax (45%) on annual income above £150,000 would be abolished from 6 April 2023 and a single higher rate of 40% will apply.
The Growth Plan 2022 | Expansion of company share option plan and increase in limits
The chancellor announced in The Growth Plan 2022 that the government is supporting companies to attract talent by increasing the generosity and availability of the tax-advantaged Company Share Option Plan (CSOP).
From April 2023, qualifying companies will be able to grant CSOP options to employees over shares with a market value of up to £60,000 (double the current £30,000 limit, which has been in place for many years).
There will also be a relaxation of the rules to enable more growth companies to qualify for CSOP, which has always been limited in its use because of these restrictions; removing them will mean that CSOPs are likely to become much more attractive to growth companies, once they are unable to use enterprise management incentive (EMI) options.
EMI options | HMRC valuations
Companies granting tax-advantaged EMI options typically agree a valuation with HMRC Shares Valuation prior to the grant of options.
During the coronavirus pandemic, HMRC temporarily extended the valuation agreement period for EMI options from 90 to 120 days. HMRC has confirmed that this temporary extension will end on 1 December 2022. Any EMI valuation agreement letters issued by HMRC on or after 1 December 2022 will be valid for 90 days only.
Companies operating EMI plans are reminded that it is important that options are granted within the valuation window agreed with HMRC, and that any material changes in circumstances which may affect the agreed valuation are promptly brought to HMRC's attention.
Future of work | Review of hybrid and distance working
On 31 August 2022, the Office of Tax Simplification launched a review of hybrid and distance working, looking for evidence of trends in relation to increasing numbers of people choosing to work in different ways (including across borders).
Given that hybrid and distance working represent the future of work, this is a timely review that we hope will lead to changes in the tax rules.
Incentives | Suspension of vesting or reducing awards
Incentive awards such as employee share options are often subject to time-based vesting, so that they "vest" over a specified period of months or years.
An increasing number of companies are exploring whether they can suspend or reduce vesting if an employee starts to work reduced hours or is away from work for specified categories of leave. Some are also considering whether the size of the award can be similarly reduced if an employee reduces the number of hours they work.
Such proposals carry a number of risks from an incentives and employment law perspective.
Restricted securities | Updated guidance on section 431 elections
Under the restricted securities regime, an employee and employer can elect to accelerate the taxation of a restricted share (using what is known as a 'section 431' election).
HMRC has updated its guidance on section 431 elections with a number of helpful clarifications.
Belgium | Reimbursement of employer's own expenses: extended reporting obligation
In Belgium, from the tax year 2023 (applicable to revenues earned in 2022), employers will be required to report the total amount of employer's own expenses they reimbursed to each of their employees. The relevant amount has to be reported to the tax authorities on a yearly basis (through the employees' individual tax forms).
Insights | Recent publications
- Employment Law Coffee Break | Quiet quitting, living wage and right to work changes
- HMRC deadline looms for registering express trusts: what's changing?
- When do 'exceptional circumstances' count for UK tax residence status?
- UK government publishes plans for audit and corporate governance reforms