The Future of Tax-advantaged Share Plans

5th July 2012

HMRC has responded to recent proposals for the simplification of tax-advantaged share plans (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 plans will replace formal approval by HMRC

A frequent complaint of practitioners is that CSOP, SAYE 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 plan 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, it would be difficult to resolve the question of whether the CSOP 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 contributions from salary other than in very limited circumstances, can be curtailed. This is an attempt to reduce compliance costs for business, 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, which given the £30,000 limit is now used mainly for middle managers rather than senior executives, and in circumstances where an EMI is impracticable, usually because a company is too large to implement an EMI plan. One possibility might be to merge CSOP with EMI, so providing a £30,000 individual limit applying to larger businesses, while preserving the £250,000 limit for those that currently qualify for EMI.

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.

On the 4thJuly 2012 the Government announced the conclusion of the Nuttall Review of Employee Ownership. We will report on this as soon as possible.