Company Perks Update for June 2020
Update on the Impact of COVID-19 on Employee Share Plans and Executive Pay
As the UK continues to navigate the challenges of the COVID-19 pandemic, changes to tax-advantaged share plans, executive pay, and employee incentives have been a significant area of focus.
On 29th May 2020, HMRC opened a consultation on draft legislation for the taxation of COVID-19 business support grants, including the Coronavirus Job Retention Scheme (CJRS). The CJRS, which has been a lifeline for many businesses, is entering its next phase, allowing for flexible furloughing from 1st July 2020 and a gradual tapering down of government grants from 1st August 2020. From this date, businesses will start to contribute a share to the CJRS grants.
Employer's Class 1A National Insurance Contributions (NICs) are now payable on termination payments above the £30,000 threshold, with this change taking effect from 6th April 2020. Employers must ensure they account for and report this additional liability correctly to HMRC.
The pandemic has led to the inclusion of government support payments in taxable income on company returns, indirectly affecting overall employee pay and incentive tax treatment. Companies needed to ensure accurate tax reporting, including any COVID-related financial supports affecting remuneration calculations.
Regarding the filing deadlines for HMRC employment-related securities (ERS) annual returns, the deadline for submitting annual returns in respect of employment-related security arrangements for the tax year ending 5th April 2020 is 6th July 2020. No specific HMRC deadline extensions linked to COVID-19 are mentioned, implying standard deadlines may still apply.
For executive pay and employee incentives, remuneration arrangements were impacted by the economic conditions around COVID, with companies reconsidering pay schemes, bonuses, and incentive structures due to economic uncertainty. Sharesave (SAYE) schemes, for example, remained available but with tax-free bonuses currently set to zero, reflecting the challenging economic environment and HMRC’s control over bonus rates applying from scheme start dates.
In June 2020, HMRC published Employment Related Securities Bulletin 35, providing clarifications for participants, employers, and administrators regarding the impact of the COVID-19 pandemic on tax-advantaged share plans. A number of bodies representing shareholders, including the Investment Association, have also published guidance setting out expectations in the light of the COVID-19 pandemic.
This update serves as an important resource for employers and employees, providing helpful information regarding the impact of the COVID-19 pandemic on employee share plans and executive pay, as well as important deadlines for filing annual returns. For more detailed guidance on ERS deadlines or executive pay specific COVID-19 adjustments, checking HMRC’s official publications or specialist tax advisories issued during the pandemic years would be recommended.
In conclusion, the COVID-19 pandemic has disrupted normal remuneration arrangements and led to adjustments in filing deadlines and tax reporting requirements. The CJRS, in particular, has been a fast-moving area, and employers need to keep up with the latest HMRC guidance. As the UK economy continues to recover, it is essential for businesses to stay informed about the latest developments in employee share plans and executive pay.
[1]: Sources: [Link 1], [Link 2], [Link 3] [2]: The Update is titled "Employment-related securities bulletin" and discusses the impact of coronavirus on tax-advantaged share plans. [3]: Source: [Link 4]
Businesses have had to reconsider their pay schemes and incentive structures, including bonus mechanisms for executive pay, due to the economic downturn caused by COVID-19. In the realm of finance, companies need to ensure accurate tax reporting of any COVID-related financial supports affecting remuneration calculations.
