The pre-budget report on 9 December is being viewed by many employers as a key milestone. This is because it would be the logical time for the Chancellor to introduce any measures designed to prevent companies from seeking to mitigate the impact of, for example, the imminent 50% tax rate. Of course, it is not just the 50% tax rate that employers are concerned about. Trailed increases in national insurance, the reduction of pension relief for higher earners and the loss of personal allowances for individuals earning over a certain level are all on their way. Employers are looking at all of these changes and working out whether there is a more effective way to pay their employees - that works for the business and the employees.
These are not wild avoidance schemes. Employers are looking at whether bonuses may be paid early – before the tax increases bite. The potential to defer receipt of bonuses until employees need them (which may or may not be when tax rates are as high) is also under active consideration by many. The use of equity to provide employees with value is an attractive prospect if the equity can be structured to provide a capital gain (taxed at 18%) rather than an income gain (taxed at what may be in excess of 50%). Alternatives to registered pension schemes are being looked at increasingly, in light of the phasing out of higher rate tax relief for some employees.
Are we expecting a raft of anti avoidance measures to prevent such steps being taken? It’s difficult to say. But many employers are taking a view that the window of opportunity between the 9 December 2009 and the 5 April 2010 is adequate to plan for the new employment tax world we face. Hence the watchful eye they will be keeping on the Chancellor on 9 December.
David Ellis is the National Head of Human Capital and can be contacted at email@example.com