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Comments on the Office of Tax Simplification review of tax-advantaged employee share plans
Prepared by Mike Landon
MM & K Limited
1 Bengal Court
Birchin Lane
London
EC3V 9DD
Tel: 020 7283 7200
Fax: 020 7283 4119
Web site:www.mm-k.com
Authorised and regulated by the Financial Services Authority
23rd March 2012
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Office of Tax Simplifications review of tax-advantaged share plans
On 6thMarch 2012, the Office of Tax Simplification (OTS) published the final report of its review of the four tax-advantaged employee
share plans approved Share Incentive Plans (SIP), approved Savings-Related Share Option Plans (SAYE), approved Company Share
Option Plans (CSOP) and Enterprise Management Incentives (EMI). This report represents an excellent start towards simplifying thecomplex tax legislation governing these plans.
Detailed improvements
During the first six months of its share plans review, the OTS have carried out some extensive research into how tax-advantaged plans
are used, their effectiveness and the opinions of companies, their advisers and administrators about how they could be improved. This
has resulted in a large number of detailed recommendations for improvements, which include:
Good leavers: extending the range of circumstances in which employees who leave employment can exercise options or take shares
out of the plan with income tax relief.
Retirement: making the provisions for employees who retire consistent for the three approved plans.
Features not reasonably incidental: removing vague references to undesirable plan features which allow HM Revenue & Customs
(HMRC) to impose additional restrictions.
Takeovers: allowing income tax relief when options have to be exercised or shares removed from the plan on a cash takeover.
Tax charge on withdrawal from SIP:reducing the period before partnership, matching and free shares can be removed from a SIP
tax-free from five to three years
1,500 limit on dividend shares: removing the upper limit on the amount of dividend which can be reinvested in a SIP in any tax year.
EMI excluded activities: reducing the number of activities which exclude companies from offering EMI options.
However, there is much more which could be done to remove the unnecessary detail from the share plan legislation. The OTS did not
have time to carry out a more fundamental review of why there should be so many requirements for tax relief and of which ones are
strictly necessary. Unfortunately, by issuing a final report at this stage, there is a danger that this once in a generation opportunity to
modernise share plans will be lost.
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Future of CSOP
A worrying development is that the OTS have called into question the future of the CSOP, which is by far the simplest and most flexible
tax-advantaged share plan and the only one available to many companies. Despite their extensive research, the OTS have found it
difficult to identify clearly the types of companies using the CSOP . The report recommends that further work should be carried out to
investigate whether the CSOP is still relevant for UK business. We therefore urge all companies with CSOPs to write to the OTS (atots-
[email protected]) to explain what they use them for and why they are a valuable tool for motivating and retaining your employees.
Assuming that further investigation demonstrates that CSOPs are worth retaining, the OTS recommend that they should be merged with
EMI to form a single discretionary share option plan. The current limit of 120,0001 to the value of shares under option will apply to
companies which currently qualify for EMI and the current 30,000 CSOP limit will apply to other companies.
Merging the two plans will result in some welcome improvements for CSOPs, for example:
it will be possible to grant options at a discount or even at nil cost (though any discount at grant will be taxed at exercise, as forEMI)
the three-year period before options can be exercised with income tax relief will be removed; and certain restrictions, imposed by HMRC, on the exercise of discretion by companies will be removed.
These useful improvements are, however, complicated by introducing them through a two-stage process and a continuing distinction
between EMI-compliant and other companies. It could be much simpler just to amend the CSOP legislation instead.
If the Government does decide to introduce a single tax-advantaged discretionary share plan, this should not be confined to share
options, but should also include awards of the full value of shares, such as conditional and deferred share awards.
Abolition of the approval process
The other bold recommendation is to replace the current process for obtaining HMRC approval for SIP, SAYE and CSOP with a self-
certification process, as already applies for EMI.
Companies will welcome any reduction in the time it takes to secure HMRC approval for plans, which has increased markedly over the last
year due to reductions in the number of their share scheme advisers. However, many are reassured by the fact that their share plans
have official approval. They will be alarmed by the OTSs related recommendation that if HMRC discover that plans do not in fact meet
1 In the Budget on 21st March 2012, it was announced that this EMI limit is to be increased to 250,000.
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the requirements for approval the companies will be liable for the underpaid income tax and will not be able to recover it from their
employees.
A better solution would be to reduce the requirements for tax relief even more radically to a few essential provisions, so that the approval
process becomes straightforward.
It is highly likely that this recommendation will be accepted by the Government because it will help HMRC to cut costs. However, we
urge HMRC to retain its current share scheme advisers so that companies and their advisers will continue to be able to ask HM RCs views
about points of uncertainty in the legislation.
Further details
The Appendix contains a full summary of the OTS recommendations and our detailed comments.
Next steps
In the Budget on 21st March 2012, the Government stated that it will consider the recommendations of the OTS review and will consult
shortly on how to take a number of the proposals forward. We understand that HMRC will be issuing a consultation document in April2012 and there are unlikely to be any changes to the legislation before the Finance Bill 2013.
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Appendix: Recommendations by the Office of Tax Simplification
Main recommendations
Issue being addressed OTS recommendation MM&Ks Comments
A new approval process
Companies must seek formal approval from
HMRC before they can implement SIP, SAYE
and CSOP.
HMRC review the plan documents, including
rules, enrolment forms, booklets and
communication materials.
This process can take a long time, partly
because the share plan legislation is far
more detailed and prescriptive thannecessary and partly because it contains
provisions which are open to interpretation
by HMRC, for example plans must not
contain features that are not reasonably
incidental to the provision of shares.
The delays have become worse over the last
year or so because HMRC have considerably
reduced the number of share scheme
advisers who handle applications for
approval.
HMRC should enter discussions with
interested stakeholders to design a self-
certification process to replace the current
approval process. This will be similar to the
self-certification which already exists for
EMI.
Model rules, with a list of required features
should be published by HMRC.
There should be power for HMRC to recovertax benefits for plans which are found not
to meet the requirements of the legislation.
Payment should be by the company, not
the employees unless they were knowingly
involved in the default.
Companies will welcome anything that
speeds up the approval process. However,
most welcome the certainty which HMRC
approval gives. If companies will potentially
be liable to pay large tax refunds to HMRC,
without the ability to reclaim this from
employees, they may be more reluctant to
introduce share plans.
HMRC already publish model rules, butthese usually need considerable
amendment, for example to take into
account recent employment and company
law and the guidelines issued by
institutional investors.
The real answer to the problem would be to
reduce radically the detailed requirements
of the legislation and, in particular, remove
provisions, such as the features not
reasonably incidental one, which cause
much of the delay in obtaining approval.
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Issue being addressed OTS recommendation MM&Ks Comments
Further investigation into the relevance
of CSOPs
The use of CSOPs has declined significantly
over the last 10 years.
The OTS have found it difficult to identify
clearly the types of companies using CSOPs.
Further work should be carried out to
investigate whether the CSOP is stillrelevant for UK business. The aim would
be to get a better picture of which
companies currently use CSOPs and why.
This threat to the future existence of the
CSOP is very worrying. CSOPs are currentlythe most flexible type of tax-advantaged
share plan and have many fewer
requirements to meet than the other three.
The aim of tax simplification should be to
move towards the CSOP by removing the
detailed requirements from the other plans.
Many companies cannot currently operate
EMI because they do not qualify. Smaller
companies, in particular, find SIP and SAYE
too cumbersome and expensive to operate.
The main reasons why CSOPs are used lessthan 10 years ago are that:
The limits have remained frozen at30,000 since 1996.
There has been a trend away from shareoptions towards the award of the full
value of shares.
EMI is used by companies which qualifyfor it because of the more generous
limits.
Despite this, more CSOP options are
granted each year than EMI ones.
The best way to make CSOPs more popular
would be to extend the tax relief to
conditional and deferred share awards.
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Issue being addressed OTS recommendation MM&Ks Comments
Merging CSOP and EMI
CSOPs are in some ways more restrictive
than EMI. For example, under a CSOP,
options cannot be granted at a discount andthey cannot normally be exercised with tax
relief within three years. In addition, HMRC
imposes additional restrictions on the
exercise of discretion by companies, for
example on the treatment of leavers and in
determining the extent to which
performance conditions have been met.
The current 30,000 limit for CSOP and
120,0002 limit for EMI are not annual
limits, but apply to all options which are still
subsisting. This can be difficult to
administer and encourages employees to
exercise early so that they can be granted
new options.
Assuming that CSOPs are still considered to
be relevant, CSOP and EMI should be
merged.
The more generous EMI individual limit
should only be available to companies
which currently meet the conditions for EMI
(eg gross assets of less than 30 million)
and the 30,000 limit would apply to other
companies.
These limits would only apply to options
granted over a rolling three-year period; so
that new options could be granted even if
the original ones had not been exercised
after three years.
Like EMI, CSOP options could be granted at
a discount (though income tax relief would
only be given for any increase in the share
value after the grant date, as for current
EMI options). Also like EMI, they could be
exercised with income tax relief less than
three years after the grant date.
However, the OTS have added an additional
complication of making these changes a
two-step process. Removal of the three-
year period before tax relief is available andthe simplification of the limits will be
deferred to the second step.
These recommendations provide very
welcome improvements for CSOPs:
The ability to grant options at adiscount, or even at nil-cost, means that
in effect full-value share awards can be
made tax-effectively.
The removal of the three-year periodbefore options can be exercised with
income tax relief means that companies
will be able to decide their own
provisions for allowing early exercise for
leavers and on the occurrence of other
corporate events, without having to
make separate provisions for approved
options.
The introduction of a three-year rollinglimit will allow CSOPs to be used more
frequently and reduce the number ofcompanies exceeding the limits by
mistake.
It would have been much simpler, though,
just to amend the CSOP legislation to make
these improvements.
If the Government does wish to introduce a
single approved discretionary share plan the
opportunity should be taken to allow for
grants other than options, such as
conditional and deferred share awards.
2 In the 21st March 2012 Budget, the Government announced that this EMI limit will be increased to 250,000.
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Supplementary recommendations common to all schemes
Issue being addressed OTS recommendation MM&Ks Comments
Annual returns
There are currently separate annual returnforms which have to be sent to HMRC for
each of the four tax-advantaged share
plans, in addition to the very complicated
Form 42 for unapproved share plans.
Companies are also required to notify HMRC
within 92 days of the grant of an EMI
option, which is seen to be an unnecessary
duplication.
Create a single annual return form on whichoption grants and share awards under all
four tax-advantaged plans can be recorded
and notified to HMRC.
The need to notify HMRC of the grant of EMI
options within 92 days would be removed.
Any attempt to combine the reporting of allfour share plans on the same document is
likely to be a complication, not a
simplification. The Form 42 for unapproved
plans is very difficult to complete even for
experienced share plan specialists because
of the large number of potential chargeable
events. Keeping a separate form for each
plan would reduce the risk of mistakes
being made on their completion.
Online filing
All annual returns are paper-based. The
ability to file online would reduce
paperwork, result in swifter completion of
forms and minimise risks of errors.
Introduce online filing for annual returns
and for provision of any plan documentation
required by HMRC.
In the long term, real time recording should
replace the annual return.
HMRC has allowed share plan documents to
be sent to them by email for quite some
time.
We understand that online filing of annual
returns has been held up due to technical
problems at HMRC.
Real time recording may be of benefit to
HMRC in due course, but could be an
increased administrative burden for
companies.
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Issue being addressed OTS recommendation MM&Ks Comments
Prescriptive rules regarding operation
of schemes
The legislation for tax-advantaged share
plans contains a large number of detailedrequirements to qualify. For SIP, in
particular, they are far more prescriptive
than necessary about how the plan must be
operated. This limits companies flexibility
on how to operate plans and means that
plans operated by international companies
have to be significantly tailored to meet UK
requirements. It also makes the process forapproval of plans by HMRC more
complicated and time consuming.
Allow companies to provide communications
to employees online.
Remove the requirement for companies to
submit employee communication material
as part of the approval process.
Dispense with the requirement for a full
paper copy of the companys articles of
association to be attached to EMI option
agreements.
Permit companies to make their own
decisions on administrative aspects of plans.
These proposals are a good start (though
HMRC does already allow companies toprovide communications online).
But there is a quite considerable amount
more that could be done to remove the
detailed administration requirements from
the legislation.
Retirement age
The minimum specified retirement age is 50
for SIP, 55 for CSOP and 60 for SAYE.
For SAYE, retirement can also be at any
other age at which the participants are
bound to retire in accordance with their
employment contracts. However, the
removal of the default retirement age for
most employees has made this provision
redundant.
SAYE has the further disadvantage that the
participant must retire exactly on the date
when they reach the specified age;
otherwise the option lapses. SIP and CSOP
allow for retirement on or after the specified
age.
Create one definition of retirement for the
three approved plans.
This common rule should allow companies
to have their own definition of retirement.
(If CSOPs are merged with EMI, tax relief
will be available even if the options are
exercised within three years of grant, so
there will be no need for a retirement
provision in the tax legislation.)
The first two recommendations appear to
contradict each other.
There is a much simpler solution, which is to
make the retirement provision for SAYE
exactly the same as it is for SIP. SAYE
options should be exercisable on retirement
on or after a specified age, which cannot be
less than 50.
Over the longer term, the concept of
retirement will become less definite and so
an alternative good leaver provision may
need to be developed (see the next
recommendation).
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Issue being addressed OTS recommendation MM&Ks Comments
Good leavers
The approved plans allow employees to be
able to exercise options under SAYE and
CSOP or withdraw their shares from a SIPwithout an income tax charge if they leave
employment early in certain good leaver
circumstances, which usually involve
involuntary cessation. However, these
provisions are more generous for SIPs
which, for example, include TUPE transfers
as good leaver circumstances.
The legislation should be changed so that all
leavers will be treated for the purpose of
income tax relief as good unless theyleave through voluntary resignation or
dismissal for cause.
For CSOPs, companies would still be able to
decide the circumstances in which options
could or could not be exercised on leaving
employment.
This recommendation would help to reduce
cases on when employees are unfairly
treated on leaving employment because thereason for leaving does not come exactly
within the statutory provisions.
Over the longer term the distinction
between retirement and voluntary
resignation may become less clear, and so
even this more relaxed provision may need
to be rethought.
Cash takeovers
Where there is a cash takeover, CSOP and
SAYE options may usually be exercised, but
no income tax relief is available if exercise is
within three years of grant. Participants in
SIPs may be obliged to sell their shares,
which will result in an income tax charge for
shares acquired in the previous five years.
There is also an employers NICs liability
(except for SAYE).
Allow income tax relief in these
circumstances.
This would be a welcome improvement, as
employees are often unfairly penalised when
there is a takeover, which is an event out of
their control.
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Issue being addressed OTS recommendation MM&Ks Comments
Restrictions on shares
The shares acquired through the three
approved plans cannot be subject to
restrictions (with very limited exceptions).SIP allows more restrictions than SAYE and
CSOP. For private companies which wish to
require employees to sell shares on leaving
employment, some very specific
requirements need to be put into the
articles of association, which can be costly
and not in the companys commercial
interests.
The prohibition on offering shares with
restrictions under SIP, SAYE and CSOP
should be removed. Employees should benotified of any restrictions on the shares.
For the purpose of the individual limits to
the size of share options, the shares should
be valued ignoring the restrictions.
This will help to give some useful additional
flexibility, which should encourage some
companies which cannot currently offerapproved share plans to adopt them.
We recommend, however, that some
safeguards should remain, so that there is
some protection for employees against
being offered worthless shares.
Requirements as to other
shareholdings
Again to protect employees, if a companyhas more than one class of ordinary shares,
a majority of the class of shares offered
under SAYE or CSOP must be held by
persons other than employees or employee
trusts or (for private company shares)
associated companies. Alternatively, the
company must be employee-controlled.
This can cause particular problems for
private companies with several classes of
shares with different rights.
Permit companies with more than one classof shares to operate SAYE and CSOP.
Again, this will give additional flexibility, butsafeguards to protect employees should
remain.
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Issue being addressed OTS recommendation MM&Ks Comments
Group schemes and associated
companies
Employees can only participate in an
approved plan if their employing company isthe company which established the plan or
one of its subsidiaries. Where the parent
company (whose shares are used) is
foreign, it is often more convenient
administratively for a UK subsidiary to
establish the plan. However, if other UK
companies are not its subsidiaries, they
cannot participate and may need to set upseparate plans.
Permit associated companies of the
company which established the plan toparticipate in an approved plan if they are
subsidiaries of the company whose shares
are being acquired.
This will be a useful change for subsidiaries
of foreign companies. They may be able toinclude all UK subsidiaries in the same
approved plan, which will reduce
administration costs and complications if
employees are transferred between group
companies.
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Recommendations specific to SIP
Issue being addressed OTS recommendation MM&Ks Comments
Redundant legislation
There is a provision which prevents shares
transferred from qualifying employee share
ownership trusts (QUESTs) from being
awarded as partnership shares. However,
the favourable tax treatment of QUESTs was
removed from 2003 and so there is no
longer any need for this provision.
Delete the relevant paragraph. This will remove the requirement for an
unnecessary clause in SIP Trust Deeds.
Partnership Shares accumulation
periods
Instead of purchasing shares monthly, SIPs
can provide that they will only be purchasedat the end of an accumulation period of up
to 12 months. The price paid by employees
is the lower of the share prices at the start
and end of the period. This is intended to
be similar to US employee stock purchase
plans.
However, some companies are reluctant tointroduce accumulation periods because
they will effectively have to fund the
equivalent of any increase in the share price
over the accumulation period, which is an
unpredictable amount.
Allow companies the choice of making the
amount paid by employees any of:
the price at the start of the accumulationperiod
the price at the end, or the lower of the two prices.
This will give companies useful additional
flexibility to design SIPs to meet theirparticular requirements.
There should be savings in administrative
costs if share purchases are once a year
instead of monthly.
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Issue being addressed OTS recommendation MM&Ks Comments
Operation of PAYE
When employees leave employment in
certain circumstances, a PAYE liability is
incurred based on the share value at thedate of leaving. The Company must
account for this by the 14th day of the next
tax month. It is often impracticable for the
SIP trustees to deduct the money from the
shares they hold from departing employees
within this timescale, which since April 2010
could result in PAYE penalty charges for the
employing company.
Penalties should not be chargeable for the
late payment of PAYE if it is paid within 90
days of the leaving date.
A good practical solution to this problem.
It could also be applied to other tax-advantaged and unapproved share plans.
Tax-free holding period
Employees are subject to income tax on
their SIP shares either if they choose towithdraw the shares within five years of
their acquisition date or if they leave
employment in certain bad leaver
circumstances during this period.
Five years is considered to be an
unreasonably long period given current
employment patterns. There is also
potential confusion with the three-year
holding period during which free,
matching and dividend shares cannot
normally be removed from the plan and the
forfeiture period of up to three years forfree and matching shares.
Reduce the period before shares can be
withdrawn tax-free to three years.
This would be a useful simplification to the
SIP legislation and is likely to encouragemore employees to participate.
It would also make SIP consistent with SAYE
and CSOP for which options can be
exercised without an income tax charge
after three years.
The amount taxable for withdrawals in the
first three years should be the initial value
of the shares on the original acquisition date
ie not the market value at withdrawal
unless the share price has fallen. (See the
next recommendation.)
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Issue being addressed OTS recommendation MM&Ks Comments
Uncapped PAYE and NICs liability on
cash takeovers
If employees accept a cash takeover bid for
the company (or are obliged to sell theirshares) within three years of acquiring
them, they are subject to income tax and
NICs on the full market value of the shares.
The tax charged may be more than the tax
saved at the original acquisition date.
In addition, there is an employers NICs
liability on this full market value. As this
potential liability cannot be predicted at the
award date, it can discourage companies
from introducing SIPs.
Assuming the earlier recommendation that
there should be no tax charge at all in thesecircumstances is not adopted, the taxable
amount should be based on the value of the
shares on the original acquisition date (or at
the time of the takeover if this is lower).
This would be fairer treatment for
employees and companies in thesecircumstances.
However, the problem is even broader, in
that the higher taxable amount also applies
when an employee leaves in bad leaver
circumstances within three years of
acquiring the shares. For greater simplicity,
the lower tax should apply whenever there
is a tax charge during the first three years.
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Issue being addressed OTS recommendation MM&Ks Comments
Dividend reinvestment
Dividends received on shares held in a SIP
may be reinvested to acquire dividend
shares, which can be taken out of the planafter three years with no income tax charge.
However, there is a limit of 1,500 to the
value of dividends which can be reinvested
in any tax year. Given that many SIPs have
now been operating for more than 10 years,
this 1,500 limit is now frequently
exceeded.
Any dividends which cannot be used to buy
a whole number of shares must be carried
forward (except in the case of some plans
using foreign shares which allow fractions of
shares to be acquired). If the dividends are
not reinvested within three years, they must
be returned to the employees.
Remove the 1,500 cap so that all dividends
can be reinvested.
Remove the three-year limit on carry
forward.
These proposals would help remove some
unnecessary administrative complications in
operating SIPs. The 1,500 figure hasclearly become out of date.
There could be further simplification if SIPs
were able to hold fractions of shares on
behalf of employees, as there would then be
no need for carry forward of uninvested
dividends (or of money contributed by
employees to buy partnership shares). We
do not understand why the OTS have
dismissed this possibility.
Recommendations specific to SAYE
Issue being addressed OTS recommendation MM&Ks Comments
Different savings periods
SAYE plans can offer employees the choice
of three, five and seven year options.
Seven year options are now offered by a
small proportion of plans and are rarelytaken up by employees.
Remove the choice of seven year options. It is unlikely that many people will mourn
the disappearance of seven year options.
However, it is arguable that the objective of
simplification should be to increaseflexibility for companies, not reduce it. Why
should companies not be able to offer any
option period that they choose (as they can
for CSOP and EMI)?
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Issue being addressed OTS recommendation MM&Ks Comments
Prescriptive rules on non PAYE
contributions
Employee savings into an SAYE plan must
normally be by deduction from salary.HMRC permit employees on maternity leave
to make payments directly to the savings
account, but this is not available, for
example, for employees on secondment or
sabbatical leave, which may mean that their
options will lapse.
Allow companies to permit savings to be
made otherwise than from salary in abroader range of circumstances.
This would remove an unnecessary
restriction currently being imposed byHMRC.
Approved savings carrier
Very few smaller companies offer SAYE
options partly because the current savings
carriers are not able to offer their services
at low enough cost.
This issue should be taken into account by
BIS in their longer-term review into the
wider application of employee ownership
among smaller private companies.
Companies could reproduce many of the
features of an SAYE plan (though not the
tax-free 20% discount) by using CSOP or
EMI options instead. This is another good
reason for keeping the CSOP legislation.
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Recommendations specific to EMI
Issue being addressed OTS recommendation MM&Ks Comments
Disqualifying events
Employees must exercise their EMI options
within 40 days of the occurrence of a
disqualifying event, which includes ceasing
employment and certain changes to the
companys ownership, trading activities or
share capital. It is sometimes impractical to
meet this deadline. In any case, it is much
less than the six months allowed for good
leavers to exercise SAYE and CSOP options
with tax relief.
Extend the 40-day period to six months. This is a good practical solution to the
problem.
Perhaps the list of disqualifying events
could be reduced as well. For example, a
holder of a CSOP option could exercise the
option with income tax relief at any time
between the third and tenth anniversaries of
grant, even if he had left employment many
years earlier (assuming, of course, that the
plan rules permitted this).
Working time requirementTo be eligible to be granted an EMI option,
employees must be contracted to work for
the business at least 25 hours per week, or
75% of their total working time. Ceasing to
meet this condition is then a disqualifying
event. This discriminates againstemployees with flexible hours or who have
more than one employment. The equivalent
CSOP provision only applies to directors and
then only at the date of grant.
Amend the working time requirement so
that it only applies to directors.
This is a helpful amendment which should
mean that only non-executive directors
would be excluded from receiving EMI
options.
For consistency with CSOP, the EMI rules
should also be changed so that the working
time requirement only applies at the grant
date and ceasing to meet it is not a
disqualifying event.
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Issue being addressed OTS recommendation MM&Ks Comments
Qualifying trades and excluded
activities
Companies cannot grant EMI options if they
carry out certain excluded activities,including certain financial services, property
development, farming and shipbuilding.
The precise rules are complex and
confusing.
Reduce the list of excluded activities. This will be welcomed by many of the small
companies which would otherwise qualify togrant EMI options; though some of the
exclusions may be required by EU state aid
regulations.
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Issues beyond simplification
Issue being addressed OTS recommendation MM&Ks Comments
EMI and entrepreneurs relief
Before capital gains tax (CGT) taper relief
was abolished in 2008, EMI option holders
were able to benefit from an effective CGT
rate of 10% (or even less for basic rate
taxpayers). They were deemed to have
acquired their shares at the date of grant of
the option and could claim full taper relief
for a disposal of shares not less than two
years later.
The entrepreneurs relief which was
introduced instead provides similar tax
benefits but only applies to individuals who
have held a minimum of 5% of the ordinary
share capital and voting rights for at least
one year before they dispose of the shares.
The position of EMI shares in relation to the
CGT tax rate needs to be considered in the
light of the eligibility criteria for
entrepreneurs relief.
The Government have already announced
acceptance of this proposal in the 21st
March 2012 Budget. However, it seems
that the shares will need to be held for at
least 12 months after the EMI option has
been exercised, which will mean that
options whose exercise is linked to exit
events may not qualify.
In addition, the position of other employee
shareholders with holdings of less than 5%
should be considered, as they also used to
qualify for the business assets rate of taper
relief.
Scheme limits
The limits to participation in SAYE have not
changed since 1991, for CSOP since 1996
and for SIP since they were introduced in
2000. This has reduced to the
attractiveness of these plans and, in
particular, has probably been one reason forthe reduction in the use of CSOP.
The limits should be reviewed on a
reasonably regular basis.
This could give a good boost to employee
share ownership.
Simplification of the CSOP and EMI limits, as
discussed above, would also be welcome
and reduce the risk of the limits being
exceeded by mistake.
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Issue being addressed OTS recommendation MM&Ks Comments
Eligible organisations
The requirements for tax-advantaged share
plans exclude certain types of company
from offering them for example, venturecapital owned companies and mutual
societies.
The FSA Remuneration Code requires the
remuneration packages for senior
employees of financial institutions to include
bonuses deferred in part into shares or
similar capital instruments.
This issue is noted for future consideration. The rules restricting shares in subsidiary
companies being used for share plans could
be relaxed provided there were safeguardsincluded to prevent employees from
benefiting from artificial manipulations of
share values.
Extending tax-advantaged plans to mutuals
would require innovative new solutions and
a major change of approach by the
Government. Some companies have dealt
with this issue by entering into contracts for
differences with employees.