United Kingdom: Share Incentive Plans: Anti-Avoidance - 24 March 2010

Article by Deloitte
Tax Group

http://www.mondaq.com/article.asp?articleid=96714&email_access=on

The measure

The Budget introduces two pieces of anti-avoidance legislation
in relation to HMRC-approved share incentive plans (SIP).

1. Corporation tax deductions for contributions to a SIP trust
   used to buy shares from a non-corporate shareholder
   
   
   
   Where companies make a contribution to the trustees of an
   HMRC-approved SIP and the trustees use those funds to acquire
   shares from a non-corporate shareholder, the company can claim a
   corporate tax deduction upfront for the contribution to the trust.
   If a sufficient number of shares are not appropriated to employees
   within specified time limits, the corporation tax deduction may be
   withdrawn.
   
   
   
   Legislation will be introduced to ensure that the company will no
   longer be able to obtain the upfront corporation tax deduction if,
   at the time the contribution is made, it is not genuinely intended
   that the shares would be passed to employees (ie it is part of a
   tax avoidance scheme).


2. Withdrawing approval of an HMRC-approved SIP
   
   
   
   Where alterations are made to a company's share capital or the
   rights attached to shares, and the alterations materially affect
   the value of the SIP shares, HMRC can already withdraw the HMRC
   approved status of the plan.
   
   
   
   A minor change will be made to the current legislation to ensure
   that approval of a SIP may be withdrawn even if, at the time of the
   alteration, there are no participants in the SIP or no shares have
   been awarded.

Who will be affected?

Companies operating an HMRC-approved SIP.

When?

The legislation will apply for contributions made to the SIP
trust and for alterations to the share capital/share rights made on
or after 24 March 2010.

Our view

We would not expect many companies to be affected by these
anti-avoidance provisions. They may, however, be regarded as
prudent housekeeping by HMRC to prevent future avoidance.

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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.