Company Benefits Modifications | June 2020
HMRC Updates on Taxation and Employee Share Plans During the COVID-19 Pandemic
As businesses continue to navigate the challenges brought on by the COVID-19 pandemic, the UK's tax authority, HMRC, has provided updates on several key areas. Here's a breakdown of the latest developments.
Consultation on Taxation of COVID-19 Business Support Grants
On May 29, 2020, HMRC opened a consultation on draft legislation for the taxation of various business support grants, including the Coronavirus Job Retention Scheme (CJRS). The consultation aims to gather feedback from businesses and stakeholders to ensure a fair and effective taxation system.
Termination Payments and Class 1A NICs
Effective from April 6, 2020, employers are now required to pay Class 1A National Insurance Contributions (NICs) on termination payments above the £30,000 threshold. This update does not provide specific details about the government support schemes that businesses have applied for.
Employment-Related Securities Annual Returns
The update also includes a reminder about the July 6, 2020, deadline for filing HMRC employment-related securities annual returns for the 2019/20 tax year. No specific updates were found in the July 2025 search results regarding changes to annual returns submission or tax-advantaged share plans.
Tax-Advantaged Share Plans
The latest HMRC guidance on tax-advantaged share plans such as Enterprise Management Incentives (EMI) confirms the existing limits and valuation methods. For EMI schemes, the individual limit remains £250,000 in option value per employee, and a company-wide cap of £3 million applies, with valuations often incorporating a minority discount to reduce the taxable value of shares and increase affordability.
Executive Pay During the Pandemic
Recent data on Company Owner Managers (COMs) show that almost half experienced decreased personal income, while a similar proportion saw stable income, and a minority had increases. This reflects the pandemic's varied economic impact rather than specific changes in executive pay rules or HMRC guidance during the pandemic.
Coronavirus Job Retention Scheme
The CJRS is entering its next phase, allowing for 'flexible furloughing' from July 1, 2020. From August 1, 2020, businesses will start contributing to the CJRS grant. Employers must ensure accurate accounting and reporting of this additional liability to HMRC for termination payments.
Upcoming Economic Statements
Press reports suggest the Chancellor may make an economic statement in July, with a main Autumn Budget to follow later this year. The exact implications for taxation and employee share plans remain to be seen.
In summary, HMRC’s current stance as of mid-2020 on tax-advantaged share plans stresses valuation prudence and limits; annual returns for employment-related securities remain subject to these valuations and existing reporting rules. The COVID-19's impact on executive pay reflects economic consequences rather than tax policy alterations or new official HMRC guidance.
For more information or to discuss any of the issues raised, readers are encouraged to contact the authors, whose details are provided at the end of the update.
In the context of the COVID-19 pandemic, businesses are expected to follow taxation guidelines released by HMRC, such as the Corporation Tax for business support grants and National Insurance Contributions on termination payments.
Moreover, businesses should remain aware of tax-advantaged share plans like Enterprise Management Incentives (EMI), which have set limits and valuation methods, as stated by HMRC.
