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News - 9 July 2012

Share scheme reform.

Since 1980, the most widely used means of employees owning a stake in the business they work for has been through HM Revenue & Customs’ (HMRC) approved all-employee share plans, such as Save As You Earn. These have proved very successful and, in common with many other countries, most notably the United States, research has demonstrated they can lead to greater productivity, better company performance and lower staff turnover. From an employee’s perspective they are an attractive savings and investment vehicle.

Since the last General Election there has been a renewed focus on employee share ownership. In 2010 the Coalition agreement made specific reference to the concept; legislation guaranteed that a privatised Royal Mail would see a minimum of 10 per cent share ownership among employees. In 2011 the Treasury asked the Office of Tax Simplification (OTS) to examine ways of simplifying existing HM Revenue & Customs (HMRC) approved employee share plans. The OTS undertook a review and reported back to the Treasury in March 2012.

Proposals to standardise its treatment of employee share options and extend self-certification for employers were issued as part of the March Budget and are in consultation at the moment (deadline 18th September 2012), for inclusion in next years Finance Bill.

There are three current tax breaks to encourage companies to offer shares to their employees:

  • Share incentive plan (SIP) where employees can buy shares out of their pre-tax salary (with potential for employer to match their contribution), or reinvest their dividends to buy more shares.
  • Save as you earn (SAYE) schemes that give employees an opportunity to invest in shares from savings deducted from taxed earnings
  • Company Share Option Plan (CSOP) - a more flexible scheme but generally under used due to its complexity and a requirement for employees to wait three years before they exercise their options.

The Enterprise Management Incentive (EMI) was designed to aid companies who found it difficult to raise finances through other means: employers only had to show that they met the qualifying criteria to set up a EMI scheme, a far easier way than any of the other three.

The proposals were initiated by Office of Tax Simplification (OTS), and also include share scheme rules, for example to harmonise retirement arrangements and other legal provisions across all the schemes, and on adjusting the qualification criteria and restrictions on SIP and SAYE schemes.

The last week of June was something of a bonanza for share scheme rule-setting, as HMRC also issued a document detailing further proposals to cater for academies involved in university spin-out companies within EMI, and a separate updated question and answer on operating the 0T PAYE code for making payments to employees under share schemes after they have left the company.

Tonmoy Kumar, Manager of the Accounts Department of ABDS says:
“There is a marked distinction in what people mistakenly think of as a John Lewis “employee share ownership” and the HMRC approved share plan(s) which encourage a wider share ownership.”

If you need any help and advice for your business on Tax, implications of the HMRC share ownership, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help
ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net
Great with People,  Brilliant with numbers, Clear and precise with words

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