What has happened?

The Office of Tax Simplification today published a review of HMRC approved plans together with its recommendations. The purpose of the review was to identify and make recommendations to remove complexity.  A copy of the report can be found at click here.

When will any changes become effective?

The report has gone to the Chancellor and it is expected that he will respond to it in the Budget on 21 March.  However, no legislation is expected until 2013.

What should you do now?

You need take no action now as it will take some time before any changes are made and there is likely to be further consultation on some of them. 

We will be explaining the proposals and how they will affect companies and their plans at our seminar on 20 April.  Invites will be sent soon.  In the meantime we will keep you up to date should anything change.

What are the most interesting recommendations?

The most interesting recommendations include:

  • The current HMRC approval process is to be replaced by a form of self certification.
  • There will be further investigation into the relevance of CSOP and whether or not it should be retained.
  • If CSOPs are retained then there should be one set of tax rules for both CSOP and EMI giving more flexibility for CSOPs.  For example, the current 3 year vesting period will be removed (but the 3 year tax rule retained) and it will be possible to grant discounted options.
  • A reduction in the tax free holding period for SIPs from 5 to 3 years is recommended.
  • The cap on the value of dividends that can be re-invested in a SIP will be removed.

See below for a summary of the other recommendations

Comment

These recommendations are good news.  For example, given the length of the current approval process, self certification will be a significant improvement as will the flexibility to use communications without HMRC approval.  It is just a shame that it looks like we will have to wait some time to enjoy any of the changes.

The uncertainty over CSOP could be a concern without knowing any transitional rules – would the tax treatment for existing options be preserved?  We hope that this will be clarified soon.

The report recognises that some of these proposals will have a cost implication for the Treasury.  The best example is the reduction to 3 years of the tax free holding period for SIP shares and the removal of the cap on dividend re-investment.  Given the cost, there is a real question mark as to whether these recommendation will be ever be introduced.

Many of the more minor "tidying up" changes are also welcome and will make it easier for companies to operate their share plans.

What are the other recommendations?

SIPs:

  • Relax the rules on the price used to allocate partnership shares where an accumulation period is used.

SAYE:

  • Remove the 7 year contract.
  • Give more flexibility as to when savings need not be taken from pay.
  • Consider self administered schemes (i.e. no savings carrier) for smaller companies.

General:

  • Introduce one annual return covering all plans.
  • Introduce on-line filing for annual returns.
  • Take away need to submit employee communications to HMRC.
  • Introduce the presumption that an employee is a good leaver unless they are a bad leaver.
  • Introduce a consistent definition of retirement across all plans.
  • Allow tax free vesting for cash takeovers.
  • Remove the material interest provisions for SAYE and SIPs.
  • Remove the limits on share restrictions which can apply to plan shares.
  • Allow companies with more than one class of share to operate SAYE and CSOP.
  • Relax the restriction on plans for associated companies.

This article is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts at Linklaters.