The Chancellor announced a further increase of 0.5% (on top of the 0.5% rise we were already expecting) on employee and employer NICs. The increase will come into effect on 6 April 2011.
This means high earners will have a marginal NICs rate of 2% and companies will have to pay 13.8%. This widens the already substantial gap between the rates income tax/NICs and CGT. As a result of the Chancellor’s proposals, the effective rate of tax on the vesting of long term incentive plan awards or the exercise of unapproved share options, could be as high as 58.9%, some 40.9% more than the current CGT rate. This will no doubt lead to more companies implementing HMRC approved share plans and unapproved share plan structures which deliver capital gains rather than income.
However, a consultation has been announced entitled “Disclosure of Tax Avoidance Schemes” which is likely to require the disclosure of a wider variety of share based incentive arrangements. Time will tell if this leads HMRC to implement specific anti-avoidance legislation in respect of the arrangements that are disclosed.