In his spring statement a fortnight ago the Chancellor, Rishi Sunak, announced a change which impacts share plans. So, for Save As You Earn, or ‘Sharesave’ as its commonly known, he announced a return to pre-Covid rules for participants which means businesses could, potentially, face administrative difficulties in coming weeks.
Under Sharesave, a qualifying company’s employees can choose to save between £5 and £500 of their salary each month over a 36- or 60-month term. At the end of the term, the employees can choose to use their accrued savings to buy shares in the company they work for, or the parent company of the group for which they work. Participants can retain or sell those shares, which may result in a capital gains tax charge, or transfer the shares into an ISA or a registered pension scheme within 90 days of acquiring the shares on the exercise of the option. Participants can also choose to cash in the savings or place the money in an ISA.
In 2020, the Revenue offered an extended Sharesave contribution holiday allowing qualifying employees who were furloughed or on unpaid leave due to the pandemic to stop paying into their savings accounts for without losing their Sharesave option. However, in his spring statement the Chancellor confirmed that on 5 April that contributions holiday, or easement, would end, with new savings contracts entered into on or after 6 April subject to a maximum of 12 months missed payments.
So, let’s hear more about the change. James Sullivan-Tailyour is a share plans specialist and he joined me by video-link to discuss it:
James Sullivan-Tailyour: “It’s quite a technical change. So HMRC have published a new prospectus which, effectively, sets out the terms on which a tax-advantaged Sharesave can be offered to employees and the change that they've made is that they've removed an easement introduced in 2020 that allowed employees who were either on furlough, or on reduced working hours due to Coronavirus, to take an indefinite savings holiday and cease to make savings under their Sharesave contract without causing that Sharesave contract to lapse at the end of 12 months of missed contributions. But, going forwards, for savings contracts entered into in the 2020 tax year and onwards, the original limit of 12 months of missed savings contributions will be reinstated and there will no longer an easement for any workers who are on furlough, although the furlough scheme has been removed, or any workers who are on reduced working contracts because of Coronavirus.”
Joe Glavina: “So are lots of employees going to be affected by this, James? Is it a big change?”
James Sullivan-Tailyour: “No it isn't, I mean, I'd hope that the pool of affected employees would be quite small now, but for any employees who continue to be on reduced working hours, any new savings contracts that they enter into, they will be able to take up to 12 months savings holiday and they won't be able to postpone any further. So, I don't think there will be that many affected employees. I suspect that the real implication will be for HR teams just to make sure that all of their communication materials are appropriately updated and that they aren't relying on any legacy communication materials that still refer to the old regime.”
Joe Glavina: “Rishi Sunak also announced plans to end the current Covid-19 easement for EMI options. on April 5. Can you tell me about that and why that’s significant, James?”
James Sullivan-Tailyour: “Yes, sure. So, in relation to the EMI scheme, HMRC have made a very similar tweak. So, previously there was an easement from what's called the ‘working time requirement’ which is essentially the requirement that an employee, in order to qualify to be granted tax-advantaged EMI options, has to work for the relevant company, or its group, for at least 25 hours a week or, if less, 75% of their working time but HMRC had introduced an easement which said if someone is on furlough, or has had their working hours reduced because of Coronavirus, they can effectively be deemed to be meeting the working time requirements if their full working hours, but for the reduction, would have met that working time requirement - that easement is now being removed. Again, hopefully this isn't going to affect that many employees, the furlough scheme has ended, I’d hope that most employees are now returning to work as normal, but for any employees who do continue to be on reduced working hours, their employer needs to be mindful that this easement has been removed and, if they no longer meet the working time requirement, that could potentially be a disqualifying event for tax purposes in relation to their EMI option.”
Joe Glavina: “On EMI James, as I understand it, it’s a scheme intended to help small and medium-sized companies only, SME’s. Why is that?”
James Sullivan-Tailyour: “Yes, it's a good question. So, there are two limits on companies that qualify to grant EMI options. So, firstly, your gross assets have to be less than £30 million pounds sterling and, secondly, you have to have fewer than 250 full-time equivalent employees. The reason being that because EMI options are so tax advantageous, the government is really targeting their use at small and medium-sized companies who are in a very early stage of development and who might not have the cash to pay their employees in the normal way with cash and bonuses and so might rely on share options instead. So, it's because of those qualifying criteria for companies that they're limited for use with smaller companies.”
Joe Glavina: “As I understand it, in recent times there has been a push to expand the remit of the current EMI legislation but, as it turns out, no changes are going to be made. Is that right?”
James Sullivan-Tailyour: “Yes, so no change as yet. HMRC has just closed a consultation in relation to the EMI scheme and they've concluded that the EMI scheme is fit for purpose and so there won't be any changes made, which, for some people was a little bit disappointing. They were hoping that perhaps there might be some relaxation of those rules we just discussed about qualifying criteria and so on, but unfortunately no change there. But what HMRC has announced is that they will be launching a consultation in relation to the company share option scheme, or CSOP scheme, which is a tax-advantaged share option scheme which is available for all companies regardless of size but where the possible benefit that can be realised on a tax-advantaged basis is much smaller. So, under the CSOP scheme you can only grant options on a tax-advantaged basis over shares which are worth up to £30,000. So, it's a much smaller scheme. It's hoped that perhaps the consultation will result in some changes such as an increased that £30,000 limit so that it might make the CSOP scheme a little bit more attractive for companies who currently have to weigh up whether it's really worth implementing because of the costs of administering it and the relatively small benefit that can be realised by participants.”
Finally, on the subject of share plans, last week we flagged the rise in popularity of Employee Ownership Trusts. This is the John Lewis style business model where the employees are part-owners of the company – an attractive option in the current market as its seen as a very effective way to attract retain staff and get them truly engaged with the business. Last week share plans specialist Charlotte Nickel talked to this programme about that in some detail – that’s ‘Employee ownership trusts help staff ‘feel valued’’ and is available for viewing now from the Outlaw website.