In his Spring Statement to Parliament on 23 March, he confirmed that the Health and Social Care Levy stays. So as the increase goes ahead, is your share plan documentation updated and ready to go?
Back in 2011, there was a 1% increase to National Insurance (NI) and though rates haven’t changed since – quite a few other things clearly have. Eleven years on we’ve experienced Brexit and the pandemic crisis, and now we’re squaring up to climate change, the possibility of international war and a cost-of-living crisis.
It's therefore a tricky time for the Government to introduce a further 1.25% increase to National Insurance Contributions (NICs), but that’s the plan from 6 April – taking the rate that most employees pay up to 13.25%. There is, however, help from July with an increase in the NI Primary Threshold.
The move was prompted by a need to raise money for social care, following heavy expenditure by the Government in the response to COVID-19. NICs will return to their current levels on 6 April 2023 but, at that point, a separate 1.25% Health and Social Care Levy will be introduced for the foreseeable future.
Impact on employee share plans
Clearly, increased NICs will affect employee share plans if NI is payable on the value of shares at maturity or vesting. Many of you will be keeping a keen eye on this, particularly in terms of the implications for tax advantaged Share Incentive Plans (SIPs). In terms of SIP Partnership Shares, potential NIC savings will be higher for both employees and employers as deductions are based on gross salary. And when it comes to SIP Partnership Shares, Matching Shares and Free Shares, the higher rate of employee/employer NIC will need to be applied to taxable transfers and sales.
Updating your SIP documentation
There may also be a requirement to update your SIP documentation. For instance, information on the treatment of Income Tax and NIC may include tables/examples of the tax benefits that accrue when shares are held for five years. Although these rates may have been included for illustrative purposes only, it would be helpful to review the content and ensure that it’s up to date.
We can also help you make the necessary updates to your plan documentation, and this might be a timely opportunity for a more general review, identifying opportunities to enhance your SIP communications in accordance with current best practice. And with the potential for additional employee and employer NI savings, it’s a good time to consider relaunching the plan.
Updates may also be needed to ancillary SIP materials, such as administration manuals, and we have provided additional training to our Customer Experience Centre Agents to support questions they may receive on this topic.
In the meantime, the countdown to 6 April continues.