All change in the world of Share Schemes

The last few months have seen many important changes in the share schemes world that impact existing and new share plans. Some of these came in this April and others will come in next year.

Here is a round up of the changes and what they may mean for you:

EMI

As mentioned in our recent blog, some important changes to Enterprise Management Incentives (EMI) schemes came in this April. It is no longer a requirement to summarise any restrictions on the shares in EMI option agreements. This was seen as an unnecessary burden and had in some cases led to EMI options being unwittingly invalid for what was really an administrative error.

Similarly, there is now no need to include a working time declaration either in a form to be signed by the employee or within the EMI option agreement itself. Just to be clear, employees must still comply with the working time requirement itself, (working for at least 25 hours a week or 75% of their working time), but no extra paperwork is required for this.

In addition, from April 2024 the previously very strict deadline to notify EMI options to HMRC within 92 days of grant will be replaced by 6th July following the end of the relevant tax year.

Capital Gains Tax Annual Exemption

The days of generous annual exemptions for capital gain tax seem numbered. From April this year the annual exempt amount fell from £12,300 to £6,000 and it will fall still further to just £3,000 per tax year from April 2024.

Why is this important to share schemes? For many years, employees in all-employee Save as You Earn (SAYE) schemes and to a lesser extent Company Share Option Plans (CSOPs), often, in practice, didn’t end up paying any tax on exercise of their options and selling their shares. The option exercise itself would be free of income tax and National Insurance Contributions and often all or a large part of the option gain would be covered by the previously generous annual exemption.

Now with the annual exemption reducing to £3,000 this is unlikely to be the case, meaning that more employees will need to submit a Self-Assessment Tax Return and pay capital gains tax on selling shares from those schemes. The position is made more significant with the welcome increase in the CSOP grant limit from £30,000 to £60,000 per individual, meaning larger gains are likely to be made on these options.

Dividend Allowances

Following a similar theme, the Government has recently started to reduce the amount that an individual can receive in dividends without having to pay tax on them. From April this year, this was reduced from £2,000 to £1,000 per tax year and will be further reduced to £500 from April next year.

If a company is dividend paying and say, employees hold shares, other than through an all-employee Share Incentive Plan or SIP (which has a special favourable dividend arrangement), if that employee receives in total more than £500 of dividends in a tax year, they will now need to submit a Self-Assessment Tax Return and pay income tax on those dividends.

Annual Returns

Finally, not a change, but just a reminder to file your online end of year returns for the 2022/23 tax year for each of your different share schemes by 6 July 2023. HMRC don’t issue reminders and a minimum £100 penalty will apply for any late returns.