Disguised remuneration - Good news for employee share plans

HM Revenue & Customs (“HMRC”) has published FAQs which provide reassurance that intended legislation on “disguised remuneration” should not affect normal employee share plans.

Background

On 9 December 2010, HMRC proposed draft legislation attacking “disguised remuneration”. It was extremely broadly drafted and, as well as catching loan and sub-trust arrangements at which the legislation was specifically targeted, appeared to give rise to up-front tax charges on employees when share or cash bonus awards were made even if the shares or cash were never received.

Proposed changes

Following a period of consultation, HMRC has indicated that standard arrangements involving employee trusts acquiring shares to meet employee share plan awards and employee trusts making and satisfying those awards should not give rise to concerns, subject to a maximum 5 year vesting or deferral limit. Specific amendments will be made to the draft legislation to cover these points.

In practice, this should deal with most concerns and it also looks as though cashless exercise arrangements (another potential issue) will be solved by a short-term loan exemption. Nonetheless, until revised draft legislation is actually provided in the Finance Bill at the end of March, companies should still be cautious in drawing up post-April 6 2011 arrangements, particularly deferred payment schemes.

Those hoping that the proposed legislation counteracting loan arrangements and family benefit trusts will be scaled back will be disappointed though as the FAQs give little sign of this.

For a link to the FAQs, please click here.

For a link to our earlier Law-Now article on this, please click here.