Mini-budget 2022: Company Share Ownership Plan, Off-payroll working and IR35

Company Share Ownership Plan (CSOP)

The approved scheme allows options over shares to be granted to employees, tax efficiently. As long as certain conditions are met, they can (at a subsequent date) exercise their options without an income tax charge. The alternative ’approved scheme’ is Enterprise Management Incentive (EMI) and is preferable to CSOP and, therefore, CSOPs are generally only seen where the relevant company does not qualify for EMI. The main drawbacks with CSOP are:

• It is limited, for each employee, to options over shares with a value of £30,000 (it is £250,000 for EMI)
• The conditions to be met are highly complex and the process is extremely bureaucratic

From April 2023, qualifying companies will be able to issue up to £60,000 of CSOP options to employees, which is double the current £30,000 limit. In addition, some of the restrictive conditions are to be removed though the details are still to be published.

Off-payroll working and IR35

Where an individual provides his or her services through a Personal Service Company (PSC), they need to consider IR35. Essentially, they need to weigh up whether or not they would be employees if they were engaged as individuals rather than through the PSC. If they would be employees then, the PSC should account for PAYE and National Insurance on its relevant income under IR35. HMRC provide a tool to help with determining employment status, see Check employment status for tax – GOV.UK (www.gov.uk).  IR35 has applied since April 2000.

Off-payroll working was introduced in April 2017. Under these rules, when a public sector entity engaged a PSC, the public sector engager needed to determine the employment status and, if it was that of employment, deduct PAYE and National Insurance on the payments to the PSC. This was extended in 2021 to large private sector engagers. Therefore, under off-payroll working, the burden of determining employment status and accounting for PAYE and NIC falls on the engager and not the PSC. Where the engager is private sector and small, the obligation remained on the PSC under IR35.

The 2017 and 2021 reforms to the off-payroll working rules will be repealed from 6 April 2023. From this date, workers providing their services though a PSC, will once again be responsible for determining their employment status and paying the appropriate amount of tax and National Insurance.