HM Revenue & Customs (“HMRC”) has published a consultation paper containing the Government’s initial response to the Office of Tax Simplification’s (“OTS”) report on simplifying tax-advantaged employee share schemes. The Government is giving further consideration to the majority of the OTS’s recommendations, including the proposal to replace the current approvals process with self-certification. However, there are several recommendations that have not been accepted, most notably the recommendation to reduce the tax free holding period for SIP shares from five years to three years.
HMRC has also published a consultation on proposals to extend the use of EMI options to academic employees.
Consultation on OTS recommendations for approved share plans
The OTS's final report on tax-advantaged employee share plans made a number of recommendations regarding the approvals process and the nature of the schemes themselves. A copy of our earlier Law-Now on the OTS recommendations is available here.
At this stage, the Government is considering whether to proceed with the majority of the OTS’s recommendations and is requesting further information on the design of those changes, their impact and the potential costs and benefits.
The majority of the changes are, if the Government decides to proceed, intended to come into effect in 2013, with draft legislation to be published in Autumn 2012. However, the move to self-certification of schemes is not expected to take effect until 2014.
The main points to note from the consultation are:
- Approvals process – the Government agrees that the approvals process for SAYE, CSOP and SIP should be abolished and replaced with a self-certification process similar to that currently used for EMI. However, the consultation also recognises the need to ensure that employers have sufficient certainty over the tax-advantaged status of their plans and HMRC has sufficient powers to deal with non-compliant schemes and seeks views on how this can be achieved. Following the consultation, the Government intends to publish detailed proposals with a view to implementing self-certification no later than 2014.
- SIP – the Government has rejected proposals to reduce the tax free holding period for all SIP shares from 5 years to 3 years due to the cost implications.
- CSOP – in line with the OTS's recommendations, the Government is carrying out further work to determine whether the CSOP remains relevant. The outcome of this project is expected in Autumn 2012 and may be followed by further consultation. Pending the outcome of this investigation, no further action is being taken at this stage on whether CSOP and EMI should be merged.
- Retirement – the Government proposes to introduce a standard retirement age across SIP, CSOP and SAYE.
- Good leavers – whilst the consultation does not go as far as the OTS recommended, the Government is consulting on introducing a standard definition of “good leaver” across SIP, SAYE and CSOP and proposes to use the SIP position as the standard.
- EMI - the Government is considering proposals to extend the grace period during which EMI options can be exercised following a disqualifying event from 40 days to 6 months, although any changes will be subject to State aid approval. However, the other OTS recommendations to limit the working time requirement to directors only and to reduce the list of excluded activities taken into account when determining whether a company qualifies to grant EMI options have not been accepted.
Companies will welcome the Government's decision to consider and consult on the majority of the recommendations made by the OTS. However, it is disappointing that some of the recommendations, in particular the reduction of the SIP holding period have not been accepted - although given the need for the changes to be cost neutral and the potential cost these measures would involve, the Government's position is not wholly unsurprising.
A copy of the consultation is available here. The consultation closes on 18 September 2012.
Extension of EMI to academic employees
HMRC has also published a consultation on proposals to extend the ability of companies to grant EMI options to academic employees.
Under the EMI legislation, EMI options can only be granted to employees and directors who meet the working time requirement - ie they work at least 25 hours per week or, if less, 75% of their working time for the company (or the group).
EMI options are commonly used by university spin-out companies but key employees often cannot be granted EMI options because they do not meet the working time requirements on the basis that part of their working time is committed to academic activities at the university or research institution.
The consultation seeks to address which academic employees should be eligible to participate, the minimum level of commitment to the company that the academic will be required to make and the nature of their activities.
The consultation closes on 18 September 2012 and it is intended that the changes will be introduced in 2013, subject to State aid approval.
A copy of the consultation is available here.