Tag Archives: internationally mobile employees

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

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