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 legislation.
- 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 possible.
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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