62774EQG EQB Client Newsletter 2021 Budget Article

March 2021 Budget and Employee Share Plans

17 March 2021

On 3 March, the Chancellor of the Exchequer, Rishi Sunak, delivered the 2021 UK Budget, which primarily focussed on the UK's post-pandemic recovery and extending several coronavirus support schemes, including the furlough scheme.

We look at the Budget in more detail and its potential impact on employee share plans.

Coronavirus Job Retention Scheme

The furlough scheme has been extended to the end of September 2021. Employees will continue to receive 80% of their current salary with no employer contributions beyond National Employer Contributions and pensions required in April, May and June.

The Government will introduce employer contributions towards the cost of unworked hours from July, starting at 10% and increasing to 20% in August and September.

Therefore, payments of the Coronavirus Job Retention Scheme to furloughed employees continue to constitute a salary, allowing SAYE and SIP contributions to be deducted.

HMRC’s ERS Bulletin 38 also confirmed their decision to extend the payment holiday for SAYE participants who cannot contribute because of furlough or unpaid leave during the coronavirus pandemic. The extension will be subject to ongoing review.

Capital Gains Tax

The Capital Gains Tax exempt amount is set to remain at its current amount of £12,300 for individuals until April 2026.

Individual Savings Account

Individual Savings Account annual subscriptions limit for 2021 to 2022 will also remain unchanged at £20,000.

Enterprise Management Incentives (EMI)

A consultation has been launched to consider whether these tax-advantaged employee option plans should be made more widely available.

Also introduced was an extension of exception to working time requirements until April 2022. This measure ensures that until the 5th of April 2022, individuals who are furloughed or who have their working hours reduced below the current statutory working time requirement for EMI due to COVID-19 will retain access to the scheme's tax advantages.

We know that the Chancellor will be making further announcements at the forthcoming “Tax Day” on 23 March. The "Tax Day" will provide more transparency and scrutiny to documents and consultations traditionally published at a Budget, and we will be monitoring responses carefully.

Further information is contained in HMRC’s ERS Bulletin 38.

Employee Share Plans In The Age Of COVID-19 And Brexit

Much of the budget announcement focussed on the UK's recovery from the coronavirus pandemic. We look at how employee share plans continue to tailor to the changing environment, proving invaluable to both companies and employees.

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COVID-19

At the beginning of the pandemic, SAYE and SIP plans came under the spotlight. Companies flexed usual task timetables and changed communication methods in light of employees working from home.

In the main, we saw companies continue with their usual launches, with a general optimism that share prices would improve again in the future.

With a period of low share prices, we have seen employees pull out of existing SAYE schemes to put their savings into new plans with a lower option price, meaning a fall in the overall number of existing SAYE accounts as savings are consolidated, with a corresponding increase in new scheme accounts.

We have also seen share plans used to acknowledge employees during the pandemic, with a rise in the number of SIP free share awards. Therefore, we forecast that the overall number of SIP participants will increase. A few companies have chosen a non-tax efficient route to reward their employees with free shares, primarily given under conditional share awards with a vesting/holding period shorter than that required for a SIP.

As lockdown begins to ease and the focus turns to economic recovery, we will be closely monitoring the number of ‘good’ leavers and whether redundancies impact the number of share plan participants.

Brexit

On  31 December 2020 at 11:00 pm, the UK completed its formal separation from the EU. The majority of share plan related products and services, including trust and nominee services, have not been significantly impacted. However, there have been general updates to documents, including privacy notices and terms and conditions.

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One area we continue to follow closely is the impact on Irish approved SAYE plans. Fundamental changes enabled UK-based savings carriers to continue to manage savings for plans launched before 31 December 2020, though unable to support new schemes launched after the Brexit transition period. Whilst this is disappointing, we see companies setting up alternative unapproved arrangements for their Irish employees using international SAYE schemes. If you are considering this, you should consult with your Relationship Manager and​ check whether you can launch under existing scheme rules or whether new scheme rules are required.

Even in these extraordinary times, share plans have proved invaluable, contributing to employees' savings, morale and engagement with the business. It has also provided lots of thought on how employee share plans can continue to carry these benefits forward in the future.

If you want to hear more on this topic, we will be speaking at the upcoming ESOP Centre On-line Share Plans Symposium from 23 to 25 March.

You can find more information here.

Find out more

If you have questions or require any form of support from us, please don't hesitate to contact your Relationship Manager or me, Jennifer Rudman, Industry Director, Employee Share Plans, jennifer.rudman@equiniti.com.