Companies should be able to self-certify employee share schemes, independent report says

The report (94-page / 1.5MB PDF) published by the Office of Tax Simplification (OTS), which was set up in 2010 to provide tax simplification advice to the Chancellor of the Exchequer, found "unanimous agreement" that the current process caused lengthy delays and generated excessive paperwork for employers.

A self-certification process, based on self-assessment principles, should be made available for the four employee share schemes that attract special tax reliefs, it said. A self-certification process already exists for one of those schemes, the Enterprise Management Incentive (EMI).

The report also includes further technical recommendations for the individual schemes such as replacing separate annual returns for the four schemes with a single requirement, streamlining the existing 'good leaver' rules so that employees receive more favourable tax treatment by default and harmonising certain definitions.

Tax law expert Judith Greaves of Pinsent Masons, the law firm behind Out-Law.com, welcomed the report, which the Chancellor is expected to respond to as part of the 2012 Budget later this month.

"The report includes recommendations in a number of areas which companies and advisers alike have identified as giving rise to unnecessary complications in operating employee share plans. Perhaps of more interest will be to see which of these recommendations the Government is minded to take forward," she said.

Approved share schemes provide employees with a way of building up and ultimately benefiting from a financial stake in their employing company. There are currently four recognised schemes in operation which attract various tax advantages. These include Save As You Earn (SAYE), where employees can save up their own money before deciding whether to use this to acquire shares in their company at a discount and the more sophisticated Share Incentive Plans (SIP). There are also two discretionary schemes, the Company Share Option Plan (CSOP) and EMI, which enable employees to have access to future growth in the value of the company.

As part of its review the OTS considered whether the CSOP plan "was still relevant" despite its declining use. It has recommended that the Government carry out further research to establish if the scheme could be phased out or replaced. In addition, the scheme should be merged with the "broadly similar" EMI to avoid confusion if it is retained, although existing limits would continue to apply so that employees of smaller companies would remain able to take advantage of the larger benefits they are currently entitled to under the EMI.

John Whiting, Tax Director for the OTS, said that despite declining usage of the schemes employers who used them saw real benefits, including greater commitment and better engagement from employees. The office had gathered views through surveys, meetings and roadshows throughout the UK.

"We think the way forward it to improve the current schemes and this has led us to recommend a number of technical and practical changes. Overall, we think the recommendations put forward today offer a common sense approach to simplify the various schemes for the thousands of employers offering them throughout the UK and will encourage wider use," he said.