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
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
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
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.