Employment taxes

The changes to Capital Gains Tax did not include any lifeline for employee shareholders. Most employees holding shares in their employing company have been taxed on sale at an effective rate of 10%. The reforms to CGT will mean for many that this rate will go up to 18% as they will not qualify for any reliefs.

Big changes to tax allowances for company cars are proposed from 1 April 2009 and this will affect many employees and employers tax bill.

Company cars
Employee shares and securities
Enterprise Management Incentive (EMI) plans
Anti-avoidance
Mobile employees

Company cars

Company car drivers will be the largest individual group of employees who will be affected by changes in the 2008 Budget. Most will see their income tax bills increase over the next three years. Employers will face corresponding increases in their Class 1A National Insurance costs.

The Chancellor's drive towards cleaner vehicles, making fewer journeys, goes on. The percentages that are used for calculating the benefit of having a company car will increase in 2008/09 and again in 2010/11 for all but the 'cleanest' cars. The only company car drivers to avoid these increases are those driving cars with CO2 emissions under 130g/km who do not have private fuel provided.

If fuel for private motoring is supplied along with the company car, there will be tax increases in both 2008/09 and 2009/10, with promises of more in subsequent years. From 6 April 2008, where a car's list price is less than £16,900 the tax on the private fuel benefit will be more than the tax on the private use of the car.

The following table shows the increases for an employee with a company car with a list price of £15,000 and CO2 emissions of 200g/km, using petrol.

Tax year	2007/08	2008/09	2009/10	2010/11
			estimate	estimate
Car benefit	4,050	4,200	4,200	4,350
Fuel benefit	3,888	4,732	4,921	5,301
Total taxable car benefit	7,938	8,932	9,121	9,651
Tax as a percentage of 2007/08 base	100%	113%	115%	122%

 

The Chancellor has said that the increases in the fuel benefit multiplier for 2009/10 and later years will be at least in line with the retail price index, so the table above assumes a 4% increase.

Employee shares and securities

Enterprise Management Incentive (EMI) plans

The Budget brought good news to the thousands of companies operating EMI share option plans for their employees. EMI plans are the most tax efficient form of employee share plan but are only available to qualifying companies. From 6 April 2008, the individual limit on the value of shares over which EMI options can be granted increases from £100,000 to £120,000.  This welcome change applies to both new and existing plans.

Now the bad news: from the date of Royal Assent of the Finance Bill, the range of companies which qualify for EMI will be further reduced. New EMI options will only be available to companies with fewer than 250 employees. This will adversely impact 'people businesses' in the service sector and those with high headcount but a relatively low asset value. Britain's more traditional businesses are also hit with shipbuilding, coal and steel production being added to the list of excluded trades. Furthermore, there is likely to be an increase in the CGT payable on the disposal of EMI shares. Previously, most disposals would have qualified for full business asset taper relief, giving rise to an effective 10% capital gains tax rate.  From 6 April 2008, gains on disposal of EMI shares will be subject to a flat 18% rate of capital gains tax.

Anti-avoidance

A loophole has been closed which allowed employees to reduce their capital gains tax liabilities and companies to claim corporation tax deductions for amounts which were exempted from income tax under the Employment-Related Securities legislation. Certain other anti-avoidance provisions have been removed having become obsolete.

Mobile employees

UK resident employees who are not ordinarily resident in the UK for tax purposes will now be treated in the same way as their ordinarily resident colleagues. Employers who offer employee share plans should review the impact on these employees.