The UK Finance Bill 2016 will give effect to a number of changes to the rules for employment-related securities (ERS) and ERS options, and aims to simplify and clarify the law as well as making some minor technical corrections. The proposed revisions will take effect on 6 April 2016.
While the overall impact of the revisions on the management of UK employee share schemes is not significant from a share plan administration perspective, there are a couple of helpful changes companies and share plan managers should be aware of.
- HMRC accepts reasonable excuse in case of missed deadline
Where, by the deadline, a company has failed to make a notification to HMRC that a share incentive plan (SIP), save as you earn (SAYE) or company share option plan (CSOP) scheme meets the legal requirements, it will no longer lose the tax advantages of the scheme where it satisfies HMRC that it has a reasonable excuse for this failure to notify. HMRC will be able to accept a reasonable excuse for notifications made on or after 6 April 2016.
- Treatment of restricted stock units (RSUs) awarded to internationally mobile employees (IMEs)
For RSUs awarded to IMEs the charge to tax will arise under the Chapter 5 rules of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) that deal with ERS options, rather than earnings. This will have effect in relation to ERS options from 6 April 2016 irrespective of the date that these have been acquired.While this adds some clarity by making explicit HMRC’s view that RSUs are typically seen as a securities option (and hence should be charged as such), there may still be cases where the classification of an RSU as a securities option won’t be clear-cut.
Further proposed changes in the UK Finance Bill 2016 include:
- Following a corporate restructure, shares in a SIP will have to be offered to all employees on a similar basis. Preferential shares in a SIP will not be able to be awarded to particular employees only.
- A company controlled by an Employee Ownership Trust will now be able to operate an enterprise management incentive (EMI) scheme. This is backdated to 1 October 2014.
- Following a company takeover, minority shareholders holding qualifying share options in an EMI will have the right for their share options to be acquired by the offer or without losing their tax advantage. This is backdated to 17 July 2013.
- There will no longer be a need for specific HMRC agreement to the methodology used by a company valuing share options in a CSOP by reference to a value at a time before the option was granted. Instead the law will provide for HMRC guidance on the matter.
Background information on these measures and a detailed description of the proposed revisions are available from HMRC online.
Whilst we do not expect any of these changes to have any significant impact on the administration of the plans, some measures are certainly helpful. Although it is not yet clear what constitutes a reasonable excuse, we feel that HMRC’s approach in respect of late self-certifications is a welcome pragmatic move. In addition, the attempt to clarify the treatment of RSUs for IMEs, will certainly have an impact on the positions companies will take for their 2016/2017 tax returns. On the other hand, it will not yet impact the 2015/2016 returns, and we may still see various positions being taken in preparation for the next HMRC tax returns.
For a broader discussion of the changes to the filing and reporting of employee share plans UK HMRC has introduced last year, please read the article with Equatex Head of Business and Systems Analysis Marco Forster on our blog, or ask to speak to our team.