The story of share option taxation is turning into something of a saga. The Computer Services and Software Association (CSSA), for the second year running, puts changes to the regime top of its Budget wish-list.
"An employee invests his or her human capital in a firm, whereas an investor invests a few quid," says Tim Conway, director of industry affairs. "The investor gets taxed at a maximum of 40 per cent, whereas the employee gets taxed at a maximum of 47 per cent. It's clearly discriminatory."
The problem stems from employers' national insurance contributions (NICs), which are payable on employees' pay above a certain allowance. The Inland Revenue approves some share option schemes, which means their proceeds are not liable for NICs. However, a scheme where someone is given options worth more than £30,000 at the time of issue, is not approved.
An unapproved scheme requires a firm to provide for this liability in its accounts - 12.2 per cent of the value of the rise in the share options it has given. In one quarter last year, this item alone wiped out auction site QXL's revenue.
Gordon Brown last year allowed firms with unapproved schemes to transfer the liability to their staff. This helped company accounts, but led to the higher tax-rate mentioned by Conway.
The government said that a 47 per cent top tax rate is comparable to US cities such as New York. However, the CSSA is calling for all share option schemes to be "approved", as long as the options last for at least a year.
"These aren't a benefit in lieu of salary," says Conway. "They are there to encourage people to stay with their companies."
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