From an Incentives perspective, the only real substantive points from today’s Budget relate to entrepreneurs’ relief and the eagerly awaited release of the controversial draft legislation on “disguised remuneration”.
As Natasha has already blogged, whilst the increase in the entrepreneurs’ relief lifetime limit to £10m is welcomed, the Chancellor’s decision not to remove or decrease the 5% shareholding requirement, or to include EMI options within the regime, will come as a blow to many companies. Many lobbied hard on this point in the hope that employees who participate in HMRC approved share plans and other more “standard” share plans could more easily benefit from entrepreneurs’ relief. I understand that discussions had taken place with HMRC/The Treasury and a proposal put forward that either EMI options would, from the date they are granted, count towards the 5% threshold or that the 5% requirement would be removed in its entirety and the holding period instead increased from 12 months to 3 years. These proposals obviously fell on deaf ears.
In relation to disguised remuneration, even before the Budget, we were looking forward to the publication of the final legislation which is due to be released on 31 March 2011 following a detailed consultation exercise and the subsequent release of FAQs on 22 February. Today’s announcement by HMRC confirms what we were expecting. The earmarking of cash or assets for employees by trusts or other intermediaries will be treated as PAYE income (and also NIC-able) as will the making of loans to employees by such persons. We are looking forward to reviewing the proposed specific exemptions to these charges when the revised legislation is released to enable us to analyse the exact impact this new legislation will have on our clients.