UK Office of Tax Simplification recommends changes to UK approved plans

I thought you would be interested to know that the Office of Tax Simplification (OTS) has recommended changes be made to approved share plans. The OTS consulted widely in their review, and we welcome their recommendations. If accepted by the Government, these changes will mean more share plans can receive favourable tax treatment.

The headlines are:

1. The OTS was asked to review approved share plans and have now published their recommendations. The Government has confirmed that it will respond to them in the Budget on 21 March.

2. One of the recommendations is to merge the discretionary company share option plan (CSOP) into the Enterprise Management Incentive (EMI) plan legislation. While the existing £30,000 CSOP limit would be retained for larger companies, this change means that favourable tax treatment can be obtained for a wide range of share plans, including: performance share plans, restricted stock units, discounted option plans and employee stock purchase plans. We welcome the increased flexibility that this brings.

3. If the Government accepts the new regime, income tax would be due on exercise (receipt of the share) in relation to any up-front discount. But, provided conditions have been met, any growth in value since grant will not be taxed until the shares are sold, and then only at capital gains tax rates. As these rates are lower than income tax there will be a tax saving for employees. In addition, as national insurance contributions are not due on capital gains, there will be a cost saving for employers too.

4. Another recommendation is to abolish the formal HMRC approval process and replace it with a self-certification process similar to EMI plans. This will make it a lot faster, and cheaper, to take advantage of the new regime.

5. The OTS has suggested that the Government consider whether CSOPs are still relevant (or should be phased out or replaced). Therefore, there may be a delay for more consultation before any changes are made. We believe that CSOPs do provide an important function for companies and so will recommend their merger with the EMI plans.

6. As well as these big-picture changes, the OTS also recommended technical changes to make all of the approved plans easier to operate in practice.

More details can be found here: http://www.hm-treasury.gov.uk/ots_press_ess_060312.htm

The second phase of the OTS's review is to look at unapproved employee share plans and we expect that this will be quite a challenge. As part of the approved plan review, the OTS consulted widely and it is likely that they will continue to do so. We hope to facilitate another meeting between clients and the OTS team and so if you would like to be part of this, please let me know.