NEWS: 1996 BUDGET; Tax relief blow to agencies’wages

Advertising agencies could face an across-the-board wage demand of around 10 per cent after the Chancellor moved to close a tax loophole in Tuesday’s Budget.

Advertising agencies could face an across-the-board wage demand of

around 10 per cent after the Chancellor moved to close a tax loophole in

Tuesday’s Budget.



Kenneth Clarke did at least defer his decision to cancel tax relief on

profit related pay until 1998. But he did little to help ease the

transition for companies.



The tax relief was originally designed to encourage businesses to

involve employees in their success, but it was shaped by accountancy

firms into a potent device for helping companies to trim their tax

bills. Tax relief was shared between the company and staff and was used

in many cases as an ingredient in employee basic pay.



‘If I were an employee at a company that ran such a scheme, I would be

banging on the finance director’s door this morning to find out exactly

how I would be recompensed for my loss,’ Chris Whitworth, the group

financial director of Publicis, said.



Publicis itself experimented with the scheme before dropping it, but it

is estimated that around 15 of the top 20 agencies are still locked into

some version of PRP relief. All could now be facing significantly higher

wage bills.



Clarke delivered the advertising world a second Budget blow by

announcing plans to curb the practice of paying employees in company

shares, a move that could have far-reaching implications throughout the

industry For the bigger companies it will stop dead a practice that at

least one of the top five agencies has experimented with - paying

employees in shares instead of cash on a monthly basis. This had the

considerable advantage of enabling the company to avoid paying National

Insurance contributions.



The proposals could also hinder the attempts of some smaller companies

to lock in key executives with equity payments, which will now be

subject to tax and NI on a monthly basis, even if the shares are in

private companies for which it is difficult to establish a value and

which are difficult to trade.



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