HMRC has released the details of planned changes to employee share scheme tax rules with the publication of the draft Finance Bill 2016.
The plans, first announced in the Autumn Statement and Spending Review on November 25, will be of particular interest to payroll administrators and share plan issuers. The key changes will:
- clarify the tax status of internationally mobile employees for non-approved schemes,
- reinstate rules to emphasise that the Share Incentive Plan (SIP) is an all-employee share scheme, and
- allow late registrations of tax-advantaged employee share schemes with HMRC where a reasonable excuse is offered.
The Finance Bill 2016 will amend the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) and the Taxation of Chargeable Gains Act 1992 to implement these changes.
Tax status of internationally mobile employees
For restricted stock units under non-approved schemes, internationally mobile employees will be charged tax under rules which deal with employee-related securities options (outlined in chapter 5 of ITEPA), rather than earnings. This means internationally mobile employees will now have to pay National Insurance on the UK proportion of their award. This change will have effect from April 6 2016 irrespective of the date the shares were acquired.
All-employee Share Incentive Plan
The SIP was initially designed to be an all-employee share scheme. Under the new rules, preferential shares in a SIP will not be allowed to be awarded to particular employees only.
Late HMRC registrations
HMRC have to be notified of all tax-approved employee share schemes, namely SIP, Save As You Earn, and the Company Share Option Plan (CSOP). From April 6 2016, companies will not lose their tax advantages as long as they can provide a reasonable excuse to HMRC for failure to notify.
A company controlled by an Employee Ownership Trust will now be able to operate an Enterprise Management Incentive (EMI), back backdated to October 1 2014.
Following a company takeover, minority shareholders holding qualifying share options in an EMI will have the right for their share options to be acquired by the offer or without losing their tax advantage. This is backdated to July 17 2013.
There will no longer be a need for specific HMRC agreement to the methodology used by a company valuing share options in a CSOP by reference to a value at a time before the option was granted. Instead the law will provide for HMRC guidance on the matter.