The Budget 2008 - Employers, Employees and Share Schemes

Changes to EMI Options

Enterprise Management Incentive (or "EMI") share options carry significant tax benefits for option holders.

There are three changes to the rules relating to the grant of these options. 

£100,000 Limit

Currently, an employee may not hold EMI options over shares with a market value (as at date of grant) in excess of £100,000. That limit will increase to £120,000.

Number of employees

Companies that employ the equivalent of more than 250 full time employees will no longer be eligible to grant EMI options.

If the option is granted by a parent company, employees of all subsidiaries are also taken into account.

If a company has part time employees, the total equivalent of full time employees is calculated by taking a "just and reasonable" apportionment. So, for instance, an employee who worked for two full days a week would count as 0.4 of a full time employee.

Non-qualifying trades

Companies that carry on (to a significant extent) trades of shipbuilding, steel production or coal production will no longer be eligible to grant EMI options

The changes will apply to all options granted on or after 6 April 2008, but will not affect the validity of options granted prior to that date.

Changes to EMI Options – budget notice

Closing a Loophole

Employees who subscribe for, or purchase, shares in their employer may be liable to income tax on those shares in certain circumstances. Typically, when calculating the value on which income tax is payable, the employee may deduct any amount paid for those shares, plus any value on which that employee had previously been liable to income tax (in respect of the shares). However the legislation in this area contains an ambiguity under which some employees have sought to argue that so-called "exempt income" (i.e. certain income which was not subject to income tax) was also a deductible expense, thus avoiding a proportion of the income tax liability. The legislation will be amended to close this loophole.

The change will apply to all shares acquired on or after 12 March 2008, and also to shares acquired before that date if a taxable event occurs, in relation to those shares, on or after 12 March 2008.

Closing a Loophole – budget notice

Company Cars and Vans

Company car tax is calculated by applying a percentage to the list price of the car. The percentage relates to the CO2 emissions of the car and ranges from 15% to 35%.

The CO2 emissions figure which determines the 15% rate for petrol cars has been set at 135 g/km of CO2 for 2008/2009.  It will remain the same for 2009/2010 and will drop to 130g/km from 2010/2011.

From 06 April 2008 a new rate of 10% will apply to cars with CO2 emissions of exactly 120 g/km or less (13% for most diesels). 

With effect from the date on which the Finance Bill 2008 receives Royal Assent, changes will be made to ensure that the same rules have effect for the provision of van fuel for private use as those that currently have effect for company car fuel.

Company Cars and Vans – budget notice part one
Company Cars and Vans – budget notice part two

Non UK resident employees receiving shares or share options

In certain circumstances, employees who acquire or hold shares or other securities as a result of their employment ("employment related securities") may be liable to income tax charges in connection with those securities.

The relevant legislation applies to employees who, at the time they acquire their employment related securities, are resident and ordinarily resident (for tax purposes) in the UK. However, only a limited number of these rules apply to employees who are tax resident but not ordinarily resident in the UK at that time.

The legislation will be changed, so that employees who are resident in the UK when they acquire employment related securities will be subject to income tax on those shares in the same way, irrespective of whether or not the employee was ordinarily resident in the UK at the time.

If the employee performs part of his or her duties in the UK, and part outside the UK, the taxable gain will be apportioned accordingly. A similar apportionment will also be available to employees who are not domiciled in the UK.

The changes will apply to all shares acquired on or after 6 April 2008, but will not affect shares acquired prior to that date.

Non UK resident employees receiving shares or share options – budget notice