Government acts on share scheme reform

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HMRC is consulting on a range of suggestions to standardise its treatment of employee share options and extend self-certification for employers wanting to take up the opportunities.

The proposals were set in train by an Office of Tax Simplification report issued as part of the March Budget and are going through the usual consultation process over the summer for inclusion as draft clauses for next year’s Finance Bill.

As explained by Anne Fairpo in this week’s AccountingWEB-CCH tax podcast, there are three current tax breaks to encourage companies to offer shares to their employees:

Share incentive plan (SIP) where employees can buy shares out of their pre-tax salary (with potential for employer to match their contribution), or reinvest their dividends to buy more shares.

Save as you earn (SAYE) schemes that give employees an opportunity to invest in shares from savings deducted from taxed earnings

Company Share Option Plan (CSOP) - a more flexible scheme but generally under used due to its complexity and a requirement for employees to wait three years before they exercise their options.

Enterprise management incentive (EMI), designed to help companies that may find it difficult to raise capital through other means. Unlike the other three schemes, employers only need to certify that they meet the qualifying criteria to set up a scheme, rather than having to “jump through tiresome approval hoops”, commented Fairpo.

In the government’s consultation document responding to the OTS proposals, Treasury minister David Gauke said the government accepted the case for self-certification. The focus of the consultation will be to ensure the new legislation includes “appropriate protections for businesses and their employees as well as the Exchequer”, the paper added.

The paper also seeks views about whether the Company Share Option Plan is still relevant and to gauge reactions to the OTS suggestion to merge it with EMI.

The advantage of this route, as explained by PKF employment tax and rewards partner Philip Fisher in March is that it would open up collective share options for more employees while simultaneously doing away with a whole chunk of complex legislation.

The consultation document seeks views on further tweaks to share scheme rules, for example to harmonise retirement arrangements and other legal provisions across all the schemes, and on adjusting the qualification criteria and restrictions on SIP and SAYE schemes.

The deadline for consultation is 18 September and Fairpo encouraged anyone with an interest in this area to feed back. “It would be very useful to business if we can get these changes approved, as at the moment [these schemes] aren’t taken up to the extent to which they could be,” she said.

The last week of June was something of a bonanza for share scheme rule-setting, as HMRC also issued a document detailing further proposals to cater for academics involved in university spin-out companies within EMI, and a separate updated question and answer on operating the 0T PAYE code for making payments to employees under share schemes after they have left the company.

Anne Fairpo’s weekly tax podcast is sponsored by CCH, which maintains a range of related resources in its eCPD library.

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