Spring Budget 2023: Encouraging Share Investment for Passive Investors and Employees
A large part of the media commentary in the wake of last Wednesday’s Spring Budget focused on two main strands.
Firstly, business taxation – the increase in the corporation tax rate to 25 per cent was confirmed, as was the making permanent of the £1m Annual Investment Allowance and a new “full expensing” regime, providing 100 per cent capital allowances for companies on plant and machinery expenditure.
Secondly, the pensions tax relief regime – specifically, the increase in the Annual Allowance from £40,000 to £60,000 and the abolition of the Lifetime Allowance tax charge from 6 April 2023. This inspired many column inches in the media.
However, perhaps a little more ‘under the radar’ were the announcements designed to encourage passive investors, as well as directors or employees, to make share investments in companies.
Here they are in more detail:
Seed Enterprise Investment Scheme (“SEIS”)
The SEIS regime was introduced in 2012 and incentivises individuals to subscribe cash for ordinary shares in start-up unquoted trading companies by offering income tax and CGT breaks.
The Chancellor saw fit to make the regime more attractive. From 6 April, the amount of investment that a company will be able to raise under SEIS will increase from £150,000 to £250,000. In addition, a company will be able to raise SEIS monies in its first three years of trading (currently, it’s two years)). Finally, an individual will be able to invest £200,000 in SEIS companies from the 2023/24 tax year onwards. This represents a doubling of the current £100,000 limit.
Tax advantaged employee share option schemes (CSOP and EMI)
One means by which a company can align the interests of its employees with its business interests and objectives is by granting share options. Tax advantaged share option schemes, such as the Company Share Option Plan (CSOP) and Enterprise Management Incentives (EMI), facilitate employee and director share acquisition. They also offer generous income tax, NIC and CGT advantages (subject to conditions being met).
The Chancellor clearly sees the value of such schemes, announcing with regard to the CSOP that the market value of CSOP options that a company will be able to grant to a single employee will double from £30,000 to £60,000 from 6 April 2023. He also announced some administrative easements, in terms of the information that must be contained in an EMI option agreement, as well as bringing employer EMI reporting obligations in line with employer reporting for other employee share plans from 6 April 2024.
Getting the right advice
These announcements reinforce the feeling that the Government sees share investment – whether by angel investors or by directors or employees in their employing company – as a good thing. But as ever, the generous tax advantages available come with numerous conditions attached. With this in mind, it is vital for companies to take proper advice and avoid the pitfalls which would result in a loss of tax relief.
To contact Westcotts’ experienced tax team, get in touch here.