Retaining Key Employees & Maximising Cash

Succession planning

Contact Derek Gemmell

or reach out to a member of our Corporate Tax team.

The past few months have been challenging for the majority of businesses throughout the world, requiring companies to juggle various important factors such as staffing levels, financing options and cash flow implications, let alone the issues and changes arising in everyone’s personal lives.   

This has obviously had a significant impact on the UK economy with reports estimating a contraction by 20%, nearly three times greater than the start of the 2007/08 recession. This decrease has, and will continue to, impact all companies.   

Corporation Tax Losses  

The majority of UK companies are unlikely to be ‘in the green’ for the accounting year in which lockdown has occurred 

Where losses have arisen in this period, these losses should be able to be carried back to the previous taxable period to offset against any taxed profits. This can create a cash repayment for the company or create a credit for offset against the company’s current outstanding tax balances. Any surplus tax losses are available to be carried forward to offset against total income in future periods. 

Additionally, should the company be involved in Research & Development activityits qualifying R&D expenditure can be enhanced to reduce tax balances with any losses available for surrender in return for a cash repayment subject to meeting qualifying conditions 

Therefore, material benefits can be accessed by seeking to submit Corporation Tax returns as soon as possible once the accounting period has ended to secure possible repayments quickly.  

Employee Incentives  

Employees are fundamental to the success of any organisation; attracting and retaining key individuals is challenging. More than any process or procedure people create value in business therefore, the creation of motivation and drive in these challenging economic times can be an important ingredient in the quest for a profitable recovery. 

Increasing salaries and making bonus payments are two of the simplest ways to incentivise staff. However, in this challenging economic time, with tighter cash flows and budget cuts, this can be difficult to achieve. As a result share based incentive arrangements can provide the solution to securing motivated and loyal staff.  

Furthermore, with COVID-19 depressing the value of many companiesthese depressed share prices can reduce the tax costs of establishing share incentives, making it a worthwhile time to consider introducing an employee share incentive. The most popular is the Enterprise Management Incentive (‘EMI’) Share Option Scheme. 

Enterprise Management Incentives (‘EMI’) 

EMI remains the most popular employee share reward given the favourable tax treatment for the recipient: 

  • No Income Tax on grant or exercise of the option, unless it is granted at a discount 
  • Capital Gains Tax, normally at 10% due to Entrepreneurs’ Relief, on the sale of shares  

This provides a tax benefit for the employee while the employer has flexibility to align the criteria to deliver each employee’s incentive to the company’s strategic objectives.  

The currently depressed share value will result in less Income Tax exposure if the options can be exercised at less than market value. An EMI scheme normally also provides the issuing corporate a significant tax deduction where EMI options are exercised. 

There are multiple other ways for a company to incentivise their staff cost and tax effectively. For more information, or to have a general discussion on what can be achieved, please don’t hesitate to contact us.

How AAB can help you with

Corporate Tax

Corporate Tax covers a broad and complex area of tax legislation, so we provide a suitably broad and comprehensively experienced team to support your business with pragmatic, commercial advice. Businesses of all sizes and types, and across a wide range of sectors, benefit from our comprehensive corporate tax compliance and advisory service. We have exceptionally knowledgeable tax teams distributed across our offices, ready to support you with their wealth of experience and expertise. We can manage your global tax exposure with a coordinated response that saves you having to seek advice from separate advisors.

View our corporate tax service

Related services

Sign up for the latest industry insights

  1. Blog26th Mar 2024

    Derek Gemmell, Head of Innovations Tax and author of blog about R&D tax relief procedures

    R&D Tax Relief Procedures: HMRC’s Latest Notification Requirement

    In today’s fast-paced business landscape, where staying ahead often means innovating and adapting to change, research and development (R&D) tax credits have emerged as a key tool for businesses, especially for small and medium-sized enterprises (SMEs).  As an R&D tax…

    By Derek Gemmell

    View more
  2. Blog15th Feb 2022

    Innovation in the Textile Sector

    Research and Development in the Textile Sector.

    By Derek Gemmell

    View more
  3. Blog27th Aug 2020

    Potential Changes to Qualifying Costs for Research and Development Tax Relief

    Following on from the Spring Budget 2020, the Government has announced that they are now consulting on the eligible expenditure that can be included in Research and Development (“R&D”) tax credit claims. The last formal consultation on the qualifying cost…

    By Derek Gemmell

    View more
  4. Blog27th Feb 2020

    Rewarding Innovation

    The UK government understands that promoting UK innovation is key to making the UK more competitive globally, increasing productivity and fuelling economic growth. One aspect of this is the promotion of Innovation tax reliefs available to both Small and Medium Sized Enterprises (SMEs) and large companies.  

    By Derek Gemmell

    View more