The Employee Share Ownership Centre
Following the review of approved (tax-advantaged) share schemes published earlier this year, the Office of Tax Simplification (OTS) has issued an interim report on unapproved share schemes.
Barriers identified by the OTS include: difficulties in meeting PAYE requirements; difficulties in managing schemes for international employees; problems with the valuation of shares; tax issues for EBTs; confusion around penalties and complexity of administrative forms.
Unapproved share plans are those which are not submitted to HMRC for formal approval – ie not SAYE, SIP or CSOP. (EMI which is not technically ‘approved’ was included in the first stage of the review with the other tax-advantaged schemes.)
These plans have the same aims as their approved counterparts – recruitment, retention, motivation and alignment of shareholder and company interests. Generally the structure allows for growth in value of the shares to be treated as a capital gain for tax purposes.
In a recent meeting with the OTS, Centre members pointed out the difficulties encountered by practitioners and companies when setting up and administering unapproved plans. It is hoped that by removing some of these barriers more companies will be encouraged to implement an employee share scheme.
John Whiting, Tax Director of the Office of Tax Simplification, said:
Many businesses have told us that these arrangements are important in aligning employee reward with how the business is doing and help with staff retention. At the same time, they regularly cite technical difficulties or administrative burdens. [...] Before we develop recommendations, it’s really important that we make sure we have a full and complete picture of the arrangements businesses use and the issues they encounter. So, we are publishing this interim report to ask people to confirm we have the right messages.
The ESOP Centre welcomed the interim report and praised the OTS’s efforts to reach out to all parties involved. Centre chairman Malcolm Hurlston said:
Unapproved share schemes are extremely complex – relying on various sections of our tax code and case law. To stop and check that they are hitting the right notes at this stage is testament to the sensible approach taken under John Whiting. We will ask our members for views and continue to contribute to the next stage of the review.
