15 Mar 2012

This news item looks at the proposals made by the Office of Tax Simplification (OTS) in its final report on tax-advantaged employee share schemes.
The OTS has published its final report on the first stage of its review of employee share schemes, which concerns tax-advantaged schemes. The second phase, looking at unapproved arrangements, will be conducted later this year. The main proposals are as follows:

  • Further research is to be conducted into whether Company Share Option Plan (CSOPs) should be retained, because OTS had received conflicting evidence as to their usefulness. Although evidence from HMRC indicates that the use of CSOPs has declined significantly, some users have made strong representations in favour of their continuance. 


  • If CSOPs are retained, OTS proposes that there should be one set of tax rules which should apply to CSOPs and to Enterprise Management Incentives (EMI). The existing limits on EMI would be raised, and a single new discretionary option scheme would be introduced, based broadly on the existing EMI legislation (which is generally less restrictive than the CSOP legislation). In order to allow for full consideration of the detailed provisions, the OTS has proposed a phased introduction of these changes, if adopted.


  • The OTS acknowledges that the existing prior approval process for Share Incentive Plans (SIP), Savings-Related Plans (SAYE) and CSOPs is involved and labour intensive. One solution would be to introduce a self-certification procedure, as currently applies to EMI, removing the need for prior HMRC approval. The OTS accepts that there are issues that would need to be resolved before this could happen, and it has therefore recommended that HMRC and interested parties should start to work on the design of a self-certification process.


  • At present, a separate annual return has to be filed with HMRC in relation to each type of scheme. The OTS recommends the introduction of simpler online filing for all schemes.


  • The OTS proposes streamlining some of the rules which apply differently in relation to the various tax-advantaged schemes. For example, a leaver could be presumed to be a "good leaver" for the purposes of all schemes unless the reason for leaving falls within certain specified circumstances, such as voluntary resignation.


  • The OTS recommends that the current five year period, for which shares awarded under a SIP must normally be retained to obtain the most favourable tax treatment, should be reduced to three years.


  • The OTS also proposes the removal of various restrictions which it believes deters employers from operating tax-advantaged employee share schemes. Examples include the rules on material interests, restrictions on shares and separate classes of shares. This would be consistent with the Government’s advocacy of wider employee ownership.


We welcome these proposals, which, in our view, are, in the main, practical and helpful. For a Government that has announced its desire to see a growth in employee share ownership, they are a good first step.
Although it is expected that the Government will respond to the OTS report as part of the Budget 2012 process, it is unlikely that any legislation will be introduced before Finance Bill 2013. There is likely to be a formal consultation period if any of the proposals are adopted, but the OTS is interested to receive feedback on its proposals at this stage. The email address to which comments should be sent is