Calls to scrap tax on share options profits

Design consultancies are backing calls from industry for Chancellor Kenneth Clarke to ditch his controversial new tax on profits from share options.

Fitch and Sampson Tyrrell are among the unknown number of consultancies which exercise Inland Revenue-approved share options. Both consultancies are concerned about the effect of the new tax on their employees.

Sir Richard Greenbury’s original recommendations to Clarke were aimed at curbing the excesses exposed in some public companies. The new tax will force employees to pay income tax on the difference between the market value of the shares and the cost of acquiring them.

Accountant Willott Kingston Smith claims the changes will “wreak serious financial damage” within the design industry. Key consultancy people who have been made shareholders to encourage them to stay on may be forced to leave the group earlier than they intended, selling their shares back to the consultancy as a way of raising the funds to pay the new tax.

The share option changes will “catch innocent bystanders. Now these people [shareholders] have got to put their hands in their pockets to invest in the consultancy and then deeper to pay for the tax which is an added cost,” says Willott Kingston Smith tax consultant Chris Moody.

The new tax, if it is retained, will penalise the average shareholder of small and medium-sized groups, says Fitch marketing director Zulimah Wallice.

WPP Group subsidiary Sampson Tyrrell gives share options to five per cent of its employees. “They will be hit the hardest by the changes,” says consultancy managing director Dave Allen.