The Office of Tax Simplification (OTS), an independent body
established to carry out reviews in order to provide expert advice
to the Chancellor on ways to improve and simplify the UK's tax
system, has published its report on tax favoured employee share
schemes (6 March 2012). There are currently four tax favoured
schemes: company share option plans (CSOPs); enterprise management
incentives (EMIs); save-as-you-earn schemes (SAYEs); and share
incentive plans (SIPs).
The report makes a number of recommendations to simplify both
the technical and administrative burdens associated with the
schemes with the aim of encouraging take up by employers and
employees. The key recommendations are:
all schemes should be subject to a self-certification regime
– currently advanced approval from HM Revenue and Customs
(HMRC) is required to establish CSOPs, SAYEs and SIPs (although a
self-certification regime is already in place for EMIs).
Comment: Schemes can be established more
quickly under a self-certification regime without the need to enter
into what can become protracted negotiations with HMRC. EMIs are by
far the most generous of the tax favoured schemes available and, as
the OTS points out, the self-certification regime has been working
successfully for this scheme for over ten years. However, if this
recommendation is to work it will require a mind-set change within
HMRC as companies will not want to risk their schemes losing tax
favoured status for minor or inadvertent infringements of the
a further review of CSOPs to consider their continued relevance
and, if they are considered still to be of use, the merger of CSOPs
with EMIs. The OTS was divided as to whether CSOPs should be
retained and considered that more time was needed to obtain
reliable information on the companies using CSOPs and their reasons
for doing so.
Comment: We are hopeful that CSOPs will be
retained as they are a valuable remuneration tool for employers
– particularly where they are used below Board level.
Merging CSOPs with EMIs would seem a sensible approach as there are
broad similarities between these two discretionary schemes.
harmonisation of key definitions, changes to time limits to
reflect today's employment climate and other technical changes
to the legislation.
Comment: It now seems likely that the
Chancellor will announce changes to the tax favoured share scheme
regime in the Budget on 21 March 2012. However, it is worth noting
that overall the proposed changes do not amount to a saving for the
Treasury. On the contrary, the OTS states in its report that it is
"conscious that our various recommendations may be seen as
a general expansion of the schemes, with consequent increased cost
to the Exchequer". Nonetheless, many of the proposed
changes can be implemented without additional tax costs and we see
no reason why they should not be implemented as soon as
We welcome the changes proposed by the OTS. It is a shame,
however, that the report makes it clear that the recommendations
are only likely to be considered for the Finance Bill 2013 at the
earliest. In the meantime, further dialogue with HMRC and the
Treasury is essential in order to ensure that encouraging greater
employee participation remains a priority.
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