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Between 6 April 2003 and 5 April 2004, do any of the following apply to your company?
Did any employees or ex-employees participate in an employees share scheme (ie were awarded or purchased shares)
Did any directors, management or other employees acquire equity?
Do you act as "scheme organiser" or trustee of any of the following:
an unapproved share option scheme
a restricted share scheme
a co-investment plan
a deferred bonus plan
a long term incentive plan
or any other form of employees' share plan?
Has the share capital been varied or have any share rights changed or crystallised?
If you answered yes to any of the above, then your company has an obligation to make a return to the Inland Revenue Share Schemes Unit regarding any ‘reportable event’ that happened in that period.
The deadline for filing a return for all reportable events in relation to the 2003/04 tax year is 6 July 2004.
The obligation to make such a return arises whether or not tax is due in consequence of any reportable event.
Substantial penalties will be levied for failure to report.
Reportable Events
These include:-
the grant, exercise or cash cancellation of a share option (or any other type of securities option);
the acquisition or disposal of shares or other securities (whether or not at market value);
the conversion of any shares or other securities;
the lifting or varying of any restrictions on shares or other securities; and
the artificial enhancement of the market value of any shares or other securities.
This list is not exhaustive, and a full list of reportable events is contained in section 421K of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA).
In particular, there is now a requirement to report the acquisition of listed shares for full market value such as, for example, the purchase of shares out of taxed bonus under a ‘Co-investment Plan’; previously, only the taxable acquisition of matching shares was required to be reported.
Share Schemes Annual Return
The returns for all non-Inland Revenue approved arrangements have been amalgamated into one document - form 42. For these purposes arrangements which are 'Inland Revenue approved' May 2004 are company share option plans, profit sharing schemes, sharesave plans and enterprise management incentive schemes.
Companies which have registered the establishment of an unapproved scheme with the Revenue should receive a return automatically shortly after the end of the tax year. If you have not notified the establishment of an unapproved scheme, or have not received a return for 2003/04, a copy of the return can be downloaded from the Inland Revenue website at: http://www.inlandrevenue.gov.uk/shareschemes/42-2004-q8-31.pdf.
Who should make the return
Although each of the scheme organiser, issuer, employer and trustee has an obligation to make a return in relation to reportable events, only one person need do so. When the return is filed, the obligation of the other parties will then be discharged in relation to those reportable events.
Penalties
The Inland Revenue has indicated that, if a return is not received by 6 July 2004, penalty proceedings will be commenced immediately. No written warning will now be given before the commencement of proceedings (as was previously the case). The Commissioners may impose a fixed penalty of up to £300 per employee, and a daily penalty of up to £60 per employee for each day the return is outstanding. The penalty may be applied in relation to each reportable event for which the return is outstanding. Penalties are subject to mitigation.
Example
If the company is required to report the grant of unapproved share options to 100 employees, and the exercise of unapproved share options by 50 employees, and fails to make a return for 90 days after the filing deadline, the maximum penalties which may be imposed are £45,000 fixed penalty and £810,000 in total in relation to daily penalties.
Jargon buster
A ‘scheme organiser’ is a company which has established a share scheme (which is not the issuer or the employer company).
An ‘issuer’ is the company whose shares are used in connection with the scheme.
A ‘securities option’ is a right to acquire shares (a share option) or a right to acquire any other ‘securities’.
‘Securities’ include shares, debentures, loan stock, warrants, certificates of deposit, units in a collective investment scheme, futures and other instruments referred to in section 420 of the ITEPA.
Actions Required
If you have not received a return, and need to report a ‘reportable event’, download a return from the Inland Revenue website.
Ensure the return is filed by 6 July 2004.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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