OTS – Review of Tax Advantaged Employee Share SchemesMonday, March 19th, 2012
On 06 March 2012, the OTS (Office of Tax Simplification) put forward its recommendations to the Chancellor of the Exchequer ahead of his Budget and issued its final report on tax advantaged share schemes (TASS). There are four types of TASS:
Company Share Option Plans (CSOP)
These are HMRC-approved schemes where an employer may grant an option to purchase shares to its employees or directors. These tax advantaged options are subject to a £30,000 annual cap.
Save as You Earn (SAYE)
These approved schemes where all employees are offered the opportunity to enter into a fixed-term savings contract to purchase shares at a discounted rate (up to 20%). The discount is not subject to income tax.
Share Incentive Plans (SIP)
The employee invests pre-tax and pre-NI salary into a Trust that purchases and allocates shares to scheme participants. Shares are accumulated through a mixture of employee purchase and employer-gifting. There are Capital Gains, Corporation and Income tax savings for employee and employer.
Enterprise Management Incentives (EMI)
A company does not have to get HMRC approval before these schemes are implemented in the workplace, merely self-certification. So, whilst Government-approved, they are not HMRC-approved. Employees must work a minimum number of hours per week to be eligible to join such a scheme where there are tax and NICs savings.
The recommendations of the report can be summarised:
- Technical and administrative simplification
- Remove the requirement for companies to seek prior approval before adopting a CSOP, SAYE or SIP. The process should be one of self-certification, as with the EMI
- Recognising that the CSOP is, possibly, irrelevant, to undertake more work to review it
- Assuming that this additional work warrants retaining the CSOP, consider merging with the other discretionary share scheme, the EMI. This is based on the fact that they are similar in nature and merger would have the effect of reducing legislation
- Notwithstanding the above recommendations, improvements can be made to all schemes in terms of harmonising definitions and ensuring that they are relevant in the current employment climate
Certainly, the rules for each of the TASS are complicated and require expert advice within organisations. Any simplification, particularly so that they are attractive and understood by the workforce, is to be welcomed. We await any actions by the Chancellor based upon the recommendations.