Share schemes simplified

Changes to SIP, SAYE and CSOP scheme rules recommended by the Office of Tax Simplification and adopted by the Government will take effect from 6 April 2014.

  • The need for HMRC advance clearance will be removed but there is a downside to self-certification: the simplicity comes at the cost of certainty and exposure to penalties, instead:
    • employers will self-certify by giving notice to HMRC and making a declaration that the relevant scheme has met the conditions specified by the legislation. This notice must be made by 6 July following the tax year in which the first award of shares is made under the scheme; and
    • HMRC will have new compliance, penalty (up to £5,000) and assessment powers and will be able to close down schemes where there is a serious breach which has not been rectified.
  • Reporting procedures for all employee share schemes returns and information will be simplified by requiring electronic filing of annual return forms by 6 July following the end of the tax year. This also includes existing schemes that have previously been approved by HMRC. Any amendments to plans will need to be reported on the annual return.
  • Electronic filing will also extend to notifications of granting of EMI options (unless HMRC has permitted otherwise).  The employer company’s declaration must also include confirmation that EMI option holders have made written declarations that they meet the working time requirement. Copies of these declarations should be retained as they will need to be provided to HMRC on request.

There will also be changes:

  • to the schemes’ purpose tests (for example the purpose of SIPs is already to provide employees a continuing stake in the company, but new conditions are added, specifically that the scheme does not provide other benefits and that cash must not be offered as an alternative to shares); and
  • in relation to information provision by companies to scheme participants, variations of share capital, company events affected by overseas legislation and share exchanges.

The purpose of the changes is to reduce the likelihood ofinnocent events causing loss of tax-advantaged status and to reduce thecompliance burden on employers. Forexample, as regards SAYE and CSOPs, the change of control of a company iscurrently a disqualifying event, meaning that any options which are notexercised before the change of control lose their tax advantaged status. However, under these new rules it will bepossible for the scheme to specify that options may be exercised within sevendays either side of the change without there being a loss in tax advantagedstatus.

As regards CSOPs, there is a series of general conditionswhich must be met, and in particular, options must be capable of exercisewithin a specified period, and the company must notify the option holder of themain terms of the option at the time of grant.