2014 sees the introduction of important changes to the administration and taxation of H.M. Revenue & Customs ("HMRC") approved and unapproved UK share schemes. Employers who operate or are planning to implement share schemes with UK participants will need to consider the effects of the proposed changes. The principal amendments are set out below.
Up until April 5, 2014, in order to benefit from the tax advantages afforded to Company Share Option Plans, Save As You Earn ("SAYE"), and Share Incentive Plan ("SIP") schemes (together, "Relevant Schemes"), employers had to obtain prior approval from HMRC that the terms of the scheme satisfy the applicable statutory conditions. From April 6, 2014, employers are no longer be able to seek HMRC approval for any Relevant Scheme. Instead, an employer must "self-certify" that the terms of the scheme satisfied the statutory conditions to take advantage of the relevant tax benefits. HMRC will then have approximately two years to inquire into whether the terms of the scheme satisfy the statutory conditions. While introduced as part of the measures to simplify the implementation and operation of share schemes, self certification removes the certainty previously afforded by the HMRC approval process and places the responsibility for compliance with the statutory conditions on employers and their advisers.
There have been some positive changes to encourage participation share schemes. SAYE monthly contribution limits have gone up from £250 to £500, greatly increasing the amount which can be saved and used to acquire discounted shares. The SIP limits have also been increased, with the amount of pre-tax salary which can be invested in partnership shares increasing from £1,500 to £1,800, and the annual limit for free shares increasing from £3,000 to £3,600. Employers will now need to consider whether employees should benefit from the new increased limits for future awards, and whether scheme rules need to be amended to take account of the revised limits.
Several amendments will be made to the taxation of unapproved share option schemes in 2014, including (i) the alignment of income tax and national insurance contributions for internationally mobile employees, (ii) the extension of corporation tax relief for shares acquired in a company within 90 days of a takeover, and (iii) the softening of a UK tax rule which treats payment by an employer of an employee's tax liability on exercise of a share award as a taxable benefit if not reimbursed by the employee, by extending the time limit for reimbursement from 90 days after the liability arose to 90 days following the end of the tax year in which the liability arose. Employers will need to consider the effects of such changes on any taxable event arising in connection with their schemes.
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