The Chancellor’s Autumn Statement was somewhat of a mixed blessing. He confirmed that they would be keeping the previously announced long overdue doubling of the individual limit for Company Share Option Plan (CSOP) options from £30,000 to £60,000, measured at the date of grant of the option. This will take effect for new CSOP options granted from April 2023.
Out with the old, in with the new(ish)
Similarly, they are keeping the proposed relaxation of the CSOP requirements about the nature of the shares to be used in CSOP options. As mentioned in our last blog, there is currently a requirement that any shares used in a CSOP must be in a share class that is ‘worth having’, by either being; ‘open market shares’ majority-held by outside investors; or by giving employees control of the company. This often difficult to satisfy requirement, is to be removed for CSOP Options granted from 6th April 2023, bringing this in line with the requirements for Enterprise Management Incentive (EMI) schemes.
However, the Chancellor announced a significant scaling back of the previously quite generous, Capital Gains Tax Annual Exempt Amount (Annual Exemption). This is currently £12,300 for all an individual’s chargeable gains in a tax year but will more than half to £6,000 from April 2023 and then further reduce to just £3,000 from April 2024.
Likely hidden effect on employees’ share schemes
Although, not immediately apparent and not discussed in any of the Government’s announcements, this is likely to have two significant hidden effects for employees’ share schemes. Firstly, up until now, a lot of the sales of shares following the exercise of tax-advantaged or ‘approved’ share schemes such as CSOPs, Save as You Earn (SAYE) or (to a lesser extent EMI because of the higher individual limits) were either wholly or significantly exempt because of the generous Annual Exemption. This is particularly the case for all-employee type schemes such as SAYE where gains per employee might typically be relatively low.
Now with Annual Exemption reducing to £3,000 in a couple of years, more of these share option gains will become subject to tax. Apart from making these schemes potentially less attractive in the long-run, it also means that many more thousands of people will now have to complete Self-Assessment Tax Returns in order to account for these taxable gains. Quite a lot of these will be employees who have never had to complete a Tax Return before because all their income went through PAYE. This will be a daunting prospect for many employees.
What can companies do to help their employees effected?
Although obviously companies cannot give their employees tax advice it will be important for them to inform participants of their obligation to complete a Tax Return and the deadline of 31st January following the end of the tax year in which the sale arose. They could also helpfully provide them with links to the relevant parts of HMRC’s website e.g. https://www.gov.uk/self-assessment-tax-returns
So like many Government announcements, its true effect may well be a case of wait and see.
To find how Postlethwaite could assist you with any tax related enquiries in relation to your share scheme plans please contact us.