Out-Law News 2 min. read
29 May 2013, 9:20 am
The consultation deals with five of the recommendations made by the OTS in its January report. These include simplifying the tax treatment of internationally mobile employees who are members of a company share plan, extending corporation tax relief to situations where there is a takeover by an unlisted company and changes to the valuation rules for listed company shares.
Share plans expert Matthew Findley of Pinsent Masons, the law firm behind Out-Law.com, said that some of the changes would be of more interest to lawyers than companies that offer shares as an employee incentive. However, there was "undoubtedly scope for industry and advisers alike to push for some welcome practical simplification", he said.
"For example, while the use of equity plans in the UK by international companies is widespread, there are undoubtedly some that find it too difficult," he said.
"The UK Government has said that it wants to emphasise that the UK is 'open for business' and to increase employee share ownership. Simplifying the tax treatment of internationally mobile employees would help on both points. Companies should, therefore, take this opportunity to make their voices heard on this issue," he said.
Unapproved share plans are those that are not one of the specific types of tax-advantaged plans provided for in the tax legislation. The review was intended to tackle the technical difficulties and administrative burdens which can discourage businesses from using share ownership as a form of staff incentive. Work by the OTS in this area followed its previous review of the four tax-advantaged schemes. The Government is taking forward many of its recommendations as part of the 2013 Finance Bill.
Among the changes being consulted on by the Government is the extension of the exchange and rollover provisions, which can prevent an income tax charge arising in certain circumstances where share options held by an employee are exchanged for new share options, to restricted and nil or partly paid shares. Currently, these provisions do not apply where the shares are restricted, meaning that they come with conditions attached that potentially reduce their value, or to shares issued for free or for an initial payment of less than their value. The potential change would "establish consistency in tax treatment of all employment-related securities" in these situations, according to the consultation.
Corporation tax relief is currently available for employee share acquisitions, subject to certain conditions. In its report, the OTS said that in certain circumstances, where the business has been taken over by an unlisted company, relief that may otherwise have been available to the company may not be. The proposals will see relief for employee share acquisitions made available for 90 days following the takeover, providing that the other relevant conditions have been met.
The Government is also considering changing the valuation method for shares awarded to employees from the 'quarter up' method to the closing price of the shares on the day of trading, as recommended by the OTS. This approach could have "simplification benefits", according to the consultation. However, in some cases it could produce a higher value for tax purposes than the current method, it said.
"The current statutory rules often confuse companies as they do not understand why they have to use the 'quarter up' price rather than the closing price on the relevant day," said share plans expert Matthew Findley. "A change in this area would be a small but welcome one for many."
The Government is currently considering some of the other recommendations made by the OTS in relation to unapproved employee share schemes, such as the creation of a new tax advantaged 'employee shareholding vehicle', through which companies can manage employee share arrangements and create a market for shares. It will also allow employers to submit the 'Form 42' annual report, which they must use to make returns about employment-related shares that fall outside of the 'approved' regime, online from 2014.
