Rates of employee and self-employed NI contributions fall again
As mentioned in the spring edition, the rates of employee and self-employed National Insurance contributions (NICs) fell from 6 April 2024:
- the main rate of Class 1 employee NICs, charged on annual earnings between £12,570 and £50,270, was cut from 10% to 8%; and
- the main rate of self-employed Class 4 NICs, charged on annual profits between £12,570 and £50,270 fell to 6%.
A reminder that there is no corresponding reduction for employers, Class 1 employer NICs on earnings above £9,100 per year remaining unchanged at 13.8%.
The requirement for self-employed individuals to pay Class 2 NICs, charged at £3.45 per week, ended from 6 April 2024. With the change in Government, it remains to be seen whether the proposals announced in the Budget to fully abolish Class 2 NICs will go ahead.
Annual exemption for capital gains tax halved
From 6 April 2024, the annual gains a person can make before paying Capital Gains Tax (CGT) was halved to £3,000. This is unwelcome news for participants in both tax-advantaged and non-tax advantaged share plans that benefit from capital gains tax treatment. Many of them have been able to use the historically larger allowance against gains made when they sell their shares to make participation in the plan effectively tax-free. If, as is widely rumoured, CGT rates are increased by the Labour Government, it is hoped that this will be at least accompanied by an increase in the annual exempt amount.
New bonus rates for Save As You Earn (SAYE)
SAYE plans are a form of tax-advantaged, all-employee share option scheme under which participants can exercise their options using the proceeds of a savings contract lasting three or five years. At the end of the savings period, the savings contract can have a tax free "bonus" added to it. If an individual chooses to withdraw their savings early, they will not be eligible for a bonus but may be entitled to receive tax free interest.
Following the introduction of a new calculation mechanism, last year, bonus and interest rates became payable in respect of SAYE contracts for the first time in nearly a decade. However, the fall in the Bank of England base rate in August meant that the bonus rate for SAYE 5-year savings contracts dropped from 3.2 times to three times monthly savings and the interest rate payable to early leavers fell to 1.33% from 1.42%. The bonus rate for 3-year savings contracts is unchanged at 1.1 times monthly savings. The changes applied to invitations issued on or after 16 August 2024.
Review of SAYE and Share Incentive Plans (SIP)
Last summer, the Conservative Government launched a Call for Evidence on the two tax-advantaged all-employee plans, SAYE and SIP, to consider opportunities to simplify and improve the schemes. Changes that the Government was asked to consider included increasing the financial limits on individual participation and reducing the vesting/holding periods for tax relief to be available. We wait to see whether the Labour Government will take any of these recommendations forward.
Hybrid plans
In their review of this year's AGM season, certain proxy voting services commented on the introduction by some companies of "hybrid" long term incentive plans. The term "hybrid plan" is taken to mean a long-term incentive arrangement under which both performance related and non-performance related awards can be granted. The rationale for companies introducing such plans tends to be the influence of US pay practices on their remuneration strategies and it will be interesting to see how shareholders in the UK respond to them going forward.
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