Possibility of Permies in the 52% bracket

It seems that some Permanent employees may at last understand why it is that contractors are so upset by the possibility of 52% tax rates. For certain permies are soon likely to be invited by the Treasury to contribute at the same rate. Despite Gordon Brown's claims to be supportive of the entrepreneur in the new economy, it is the big business entrepreneur who is winning out at the cost of the smaller player – in this case the permanent employee with share options.

As a result of changes to national insurance rules to be announced this week, an employer will be able to force staff to pay national insurance contributions on share options, where previously the NI contribution was met from company funds. So any staff exercising their options face the possibility of paying 40% capital gains tax plus 12.2% NI. This change is likely to catch out employees who have shared an entrepreneur's risk, often from the start and taken options with a lower than market rate salary. Undoubtedly this change will affect the technology and dot com industries the most.

Contractors making choices to avoid the implications of IR35 should also be aware. If you are starting a dot com project with colleagues, dusting off an old project idea to generate a second income stream and giving away options to form a team or are even taking the plunge back into permanent employment with options, this new change will affect you.

Under the new rules, larger entrepreneurial employers, such as ARM and Psion, stand to save millions of pounds per year. The larger players have campaigned strongly since the Treasury announced the original proposals which placed the burden of NI payments on the employer. They argued that they would be forced to set aside huge sums of money that they did not have if the technology was not yet profitable, and which they needed to build their businesses. The Treasury has also been criticised for not scrapping NI on share options altogether. But a leading tax partner from Grant Thornton labelled the Treasury's latest decision to switch the NI payment from employer to employee as 'bizarre'.

As for IR35, the Treasury and Government have not issued clear guidelines about what to do. As for IR35 this has created uncertainty – adding an additional burden to the struggling entrepreneur. As for IR35, the larger companies have been able to sway the government. As for IR35 those that do the entrepreneurial work are getting clobbered.