Welcome to our Employee Incentives Update for winter 2019.
This edition covers:
- Executive pay transparency measures and updated investor guidelines.
- Changes to entrepreneurs' relief.
- The latest update from HMRC on employment related securities.
- Termination payments - a further delay to the next set of NICs changes.
- The government's 'Good Work Plan', in response to the Taylor Review.
- Some recent employee tax developments in the Netherlands and Belgium.
We hope that you find this update interesting. If you would like to discuss any of the issues raised, please let us know. Our contact details are set out below.
Corporate governance | Executive pay transparency measures and updated investor guidelines
The revised Corporate Governance Code and the new reporting requirements for quoted companies are now in force, applying to financial years beginning on or after 1 January 2019.
This includes the reporting of CEO pay ratios by large UK listed companies, which will be the focus of media attention as companies begin to report under the new regime. A number of institutional investor groups have also recently published updated versions of their guidance and principles on executive pay.
Budget and Finance Bill | Entrepreneurs' relief changes
Changes to entrepreneurs' relief were announced at the Budget on 29 October 2018. Following lobbying by professional organisations, the Finance Bill has been amended to introduce a further alternative test to the definition of "personal company", which will apply as an alternative to the new tests originally announced. These new amendments, announced just before Christmas, are very welcome.
Employment Related Securities Bulletin | EMI plans
HMRC has published Employment Related Securities Bulletin 30, which sets out HMRC's view on a number of share schemes developments relevant to companies and their advisers.
Points to note for companies operating EMI plans include the following:
- Employers should let HMRC know if they identify errors in EMI options granted within nine months of the date that the original notification was given to HMRC, using a 'reasonable excuse' code. The Bulletin sets out the information which is required to generate the code from HMRC, and reminds companies that they must then remember to cancel the originally notified incorrect options when filing their end of year annual return.
- A reminder that, when EMI replacement options are granted, the replacement options must be notified within 92 days using HMRC's Employment Related Securities online service. Further information on the replacement options must then be provided within the next annual return.
- Formal confirmation that (following the short lapse in EU State Aid approval of the EMI regime last year) HMRC will treat options granted between 7 April 2018 and 15 May 2018 as continuing to receive EMI tax advantages.
Termination payments | NIC changes further delayed
The introduction of the NICs Bill has been delayed and HMRC has updated a policy paper to reflect the anticipated revised timetable announced at the Budget in 2018.
The previously announced introduction of employer's Class 1A NICs on termination payments above the £30,000 statutory threshold (which is intended to harmonise NICs with the income tax measures introduced on 6 April 2018) will not now come in until 6 April 2020.
Taylor Review | 'Good Work Plan' announced
On 17 December 2018, the UK government announced its latest response to the Matthew Taylor review of modern working practices. It published its 'Good Work Plan', setting out its vision for a labour market that "rewards people for hard work, celebrates good employers" and "improves the quality of work in the UK".
Netherlands | 30% regime/extraterritorial cost allowance for expatriates
Under the 30% regime in the Netherlands, employers can essentially provide 30% of the salary of an incoming employee (receiving salary in excess of EUR 37,743) as a tax-free allowance. In addition, tuition fees for international schools can be compensated on a tax-free basis.
As reported in our Autumn 2018 Update, from 2019, the maximum duration of that regime will be shortened from eight to five years. In response to criticism of certain aspects of the original proposals, changes have been made so that certain existing 30% rulings will now be grandfathered as follows:
- rulings made under the previous rules that would have ended in 2019 or 2020 will continue until their original expiration date as set out in the ruling; and
- rulings that would have ended in 2021, 2022 or 2023 can still be applied until 31 December 2020.
Belgium | Recent employee tax developments
There have been a number of recent employee tax developments in Belgium, including the taxation of company cars and more on the new rules for Belgian companies when income is granted by a non-Belgian related company.
On the horizon
The loan charge for disguised remuneration loans arises on 5 April 2019. Broadly, these are loans made from 6 April 1999 through disguised remuneration tax avoidance schemes which are still outstanding on 5 April 2019. Many individuals affected by this charge will have registered their interest in settling with HMRC and some may have applied for postponement of the loan in accordance with HMRC's terms. There continues to be interest in the press about the loan charge, and the Treasury has agreed to conduct a review to assess its impact.
The UK government's consultation on ethnicity pay reporting closed on 11 January 2019. We can expect to see a government response in the coming months.
Brexit Business Brief
The UK’s exit from the EU will present both challenges and opportunities across the board, whether you are a business with a domestic UK market or one trading internationally, and regardless of whether your operations are based in the UK or not. Our regular Brexit Business Brief can help you to understand the legal issues, and what this could mean for your business.
Register for Brexit Insights, and other updates from Osborne Clarke, to ensure your receive the latest updates by email.