HMRC has responded to recent proposals for the simplification of tax-advantaged employee share schemes (i.e. SAYE, SIPs, Company Share Option Plans (CSOPs) and EMI. It appears that some of the recommendations will be taken forward, namely:
1) Company self-certification of CSOP, SIP and SAYE schemes will replace formal approval by HMRC
A frequent complaint of practitioners is that CSOP options, SAYE options and SIPs require formal approval before they can be established. For companies that do not have vanilla plc-type articles, there are additional complications, as HMRC examines share rights and restrictions to determine whether they are consistent with the somewhat opaque legislation. The approval process generally takes a minimum of eight weeks, and can be much longer where, for example, changes in the articles have to be agreed.
Although a move to self-certification is to be welcomed, we think it needs to be accompanied by the removal of many of the restrictions on eligible shares, many of which are agreed to be illogical and arbitrary. Another aspect of the consultation involves the simplification of some of the current restrictions, but unless they are removed or very much simplified, it is difficult to see how an adviser could confidently certify a plan as compliant with the legislation, unless the company is a listed plc.
From a due diligence point of view, a potential buyer of a company operating an approved employee share scheme would also have problems where an approved plan had been self-certified, unless the rules on restrictions were significant relaxed. Without the protection of a formal HMRC approval for a company’s share scheme, it would be difficult to resolve the question of whether, for example, a CSOP option had been validly implemented, so creating a tax risk.
2) Removal of certain requirements relating to plans
The government will consider whether certain administrative requirements, such as the requirement to provide participants with certain tax-related information, to account for PAYE within 30 days of shares leaving a SIP early, and to deduct SAYE option contributions from salary other than in very limited circumstances, can be curtailed. This is an attempt to reduce compliance costs for business arising from operating an employee share scheme, and seems unlikely to cause any substantial loss of tax to the Treasury.
3) The future of CSOPs
There will be further discussions on the future of the CSOP option scheme, which given the £30,000 limit is now used mainly for middle managers rather than senior executives, and in circumstances where an EMI option is impracticable, usually because a company is too large to implement an EMI option scheme. One possibility might be to merge CSOP options with EMI options, so providing a £30,000 individual limit applying to larger businesses, while preserving the £250,000 limit for those that currently qualify for EMI options.
Although the government appears committed to employee ownership in principle, the Treasury will be reluctant to sign off on any changes that reduce its receipts. The changes most likely to be adopted are therefore those that can demonstrate cost and administrative savings for companies, employees and HMRC alike.
News release ends, 11 July 2012.
Postlethwaite is an English law firm specialising in employee share schemes, share options, share incentive plans and long-term incentive plan. For more information, please visit http://www.postlethwaiteco.com
Note for Editors:
POSTLETHWAITE is a law firm which provides specialist advice on employee share schemes, employee share ownership and majority employee ownership, including EMI share options, approved options, long term incentive plans, Share Incentive Plans (SIPs), ownership by employee trusts and a wide variety of other share schemes. We look after clients from all parts of the UK, with a particular focus on smaller listed and private companies.
For further information concerning employee ownership and employee share incentives, please contact Robert Postlethwaite on 020 7470 8805 11-15 Betterton Street London WC2H 9BP
Authorised and regulated by the Solicitors Regulation Authority, number 385417