Category Archives: Employee share schemes

Q&A on unapproved employee share schemes

JW_OTS_bannerThe OTS’s report on unapproved employee share schemes has been generally welcomed by those involved with share-based rewards. Here’s a summary of some of the points we have heard – plus our responses.

What are the chances of the changes coming in?

That is up to the Chancellor. We have had a very extensive consultative process to develop our recommendations, including input from HMRC and HM Treasury.  Significant changes will be subject to consultation but we anticipate initial responses in the Budget.

Will this be part of a general relaunch of employee share ownership?

Again that has to be up to the government. But it is clearly an area receiving a good deal of attention from the government – changes to tax advantaged share schemes stemming from our earlier report, the Nuttall report’s recommendation on widening employee share ownership and the ‘shares for rights’ proposals.

Are the recommendations going to raise money for the Treasury?

The OTS has to be revenue neutral in our package of recommendations but we have to balance that with a drive for simplification. We think the recommendations are broadly revenue neutral but it does all depend on how the ideas are taken forward. For example, changing the tax charging arrangements for share awards could raise money for the exchequer as income tax/NIC could be on higher values – though the tax would be somewhat delayed.

Is the employee shareholding vehicle a safe harbour employee benefit trust (EBT)?

Probably, but we do not want to badge it as such at this stage. As is well-known, HMRC have a serious problem with abuse of EBTs and are understandably nervous of opening up new avenues for avoidance. But we think that many companies would welcome a simple vehicle – probably a form of EBT – which operated under model rules and could be used to provide a market for employees’ shares. There would be restrictions such as not being able to own other assets and having to be UK-based, but it would be protected from the raft of tax traps we identified. We also think this vehicle will be needed for the Nuttall reforms and ‘shares for rights’ proposals.

Surely you should have just abolished Form 42?

This was probably the most frequent request at meetings and in our postbag! It is part of HMRC’s risk management procedures but we do think HMRC need to look at how much of the information they really need and justify it to taxpayers. We have suggested various improvements to ease the burden.

Have the OTS now finished with these areas?

In principle yes, though we are keenly interested in how the recommendations are taken forward and plan to stay involved. It may be appropriate to use our Consultative Committees and general contacts to help develop some of our ideas during any consultative process.

John Whiting
Tax Director, OTS

A secondee’s experience

IMG_0414 (427x640)The OTS is looking to recruit experienced tax professionals on short-term secondments for its review into employee benefits and expenses. Further details of the role can be found on the vacancies page of our website:

http://www.hm-treasury.gov.uk/ots_vacancies.htm

If you would like to offer input to the employee benefits and expenses review, either in person or via email/telephone, please email the OTS at OTS-Employee.Benefits@ots.gsi.gov.uk

To give a flavour of what it is like to work for the OTS one of our secondees, Sarah Anderson, kindly blogged on her experiences. Over to Sarah:

In July 2011, I rather unthinkingly applied for a position as a secondee at the Office of Tax Simplification. I’d not heard of the OTS at that point but they were looking for people with experience with share plans, particularly with private companies, and it sounded interesting. In addition, the idea of simplifying even a tiny part of the tax code sounded like an excellent idea!

Eighteen months on and I can honestly say that the unthinking application was one of the best things I’ve ever done. For starters, there’s the undoubted kudos of swanning into the Treasury buildings like you belong there and the thrill of bumping into the big guns in the canteen. But even if you’re not as shallow as I am, the experience is one that I’d recommend wholeheartedly.

One of the most enjoyable parts of my 18 months’ secondment has undoubtedly been the opportunity to work alongside the leaders in my industry – particularly the chance to look at life from the perspective of HMRC and Treasury officials. I have always had respect for their experience and expertise; now I have had a greater insight into challenges they face on a daily basis that respect has increased enormously. I hope that one of the positive outcomes of the work of the OTS generally will be to increase trust and understanding between the private sector and HMRC – in the majority of cases, I really believe that our views and objectives are more closely aligned than perhaps we realise.

The experience has sometimes been challenging from a technical perspective. When the OTS produces a report, every single aspect of it is put under the spotlight by various parties: committee members with specialist tax knowledge, HMRC teams with (sadly, too much) experience of tax avoidance opportunities and the broader tax implications, Treasury officials looking at the hidden costs of proposed changes…and, of course, the civil servants always with an eye to the political angle. From the vague, “lightbulb” idea, right through to the precise wording (is it a “charge” or a “penalty”? Does the word “arrangement” have negative connotations?), every point is tested, questioned and argued with individuals who are absolutely the leaders in their field. Sometimes, you lose the arguments. That can, frankly, be terrifying – but like Nietzsche said (or Kelly Clarkson sang, take your pick), “What doesn’t kill you makes you stronger”!

The experience has been frustrating at times, downright infuriating at others, and sometimes the demands can really impinge on your day job. On a bad day, I think that we could, and should, have been braver, making more radical in our suggestions on employee share schemes. But I do believe we have made at least some improvements to the tax advantaged share schemes, and I hope our recommendations for unapproved plans will be accepted and remove some of the existing complexities for companies and HMRC alike. 

The reason I chose to work in this area is because I was given the chance to own shares in my employing company, and saw the difference it could make. So I am also really proud to have been involved an exercise that publicises the concept of employee share ownership. And – sad though it sounds – I am really excited when I see improvements to the share schemes legislation and I can say (to anyone who cares to listen): “I did that!”

Sarah Anderson
OTS Secondee on employee share schemes 

Unapproved employee share schemes

BlackberriesThis month sees the culmination of our two major reviews of unapproved employee share schemes, published today, and pensioner taxation, published next week.

Our final report on unapproved employee share schemes comes hot on the heels of the Government’s response to our review of tax advantaged employee share schemes in December. The Chancellor accepted the majority of our recommendations from that report and we sincerely hope our report on unapproved employee share schemes will be met in the same way.

As our Chairman Michael Jack notes, this area of the tax system is a “bramble patch” of complexity. Continuing this metaphor he hopes that the package of recommendations in our report will “enable users to access the blackberries more easily and with fewer prickles” from the “thorns of complexity”.

So what does the report say? Well, we have made six main recommendations, with three smaller, but still significant recommendations. These include recommendations on the general taxation of unapproved share schemes, international aspects, administration (including Pay as You Earn, Form 42 and valuation) and a proposal for a new vehicle for holding employee shares. Full details of our recommendations can be found in the report at the link below:

http://www.hm-treasury.gov.uk/d/ots_unapproved_employee_share_schemes_final.pdf