Number 2 July 2012

The Employment-Related Shares & Securities Bulletin provides information and updates on developments relating to employment-related securities, including the tax-advantaged employee share schemes.

This bulletin contains articles on:

1. Our working arrangements for the London 2012 Olympics
2. Consultation on the Office of Tax Simplification (OTS) recommendations on tax-advantaged employee share schemes
3. Enterprise Management Incentives (EMI)
4. Section 430/431 ITEPA tax elections
5. Definition of Market Value in Share Incentive Plans
6. Other news of interest

Enquiries about the content of this bulletin should be addressed to:

Hasmukh Dodia

Employee Shares & Securities Unit

HMRC Room G53

100 Parliament Street

London

SW1A 2BQ

Email: Shareschemes@hmrc.gsi.gov.uk

The Bulletin will be published as and when sufficient articles or updates are available, or when HMRC has an item that it wishes to bring to your attention quickly. We welcome any suggestions for future articles although we cannot guarantee publication.

A reference to ITEPA is a reference to the Income Tax (Earnings & Pensions) Act 2003 as amended.

1. Our working arrangements for the London 2012 Olympics

We are proud that London is the host city for the 2012 Olympics and wish Team GB best of luck. We have been doing our business planning for the Olympics period for some time and we do not need you to make changes in the way you work with us and we do not expect customers to encounter delays in service as a result of our internal changes.

During the Olympic period there will be staff available to ensure incoming and outgoing post continues to be delivered to and from us. We can deliver our service from a dispersed network of locations. For instance, we can pick up telephone calls from any one of a number of offices around the country. And in every location we can access e-mails, correspondence or other data needed to continue our work.

This is how we intend to maintain our service with as little extra stress on our team or our procedures as possible. We see the Olympic period as providing an opportunity to develop solutions which will improve our business resilience and which, as you would expect in any business, will be incorporated into our business continuity and disaster recovery plans.

The bottom line is that we will be open for business as normal; all addresses, telephone numbers and e-mails staying the same and you will not need to make changes to your processes because of how we are coping during the Olympic period. Our customers should continue to contact us as they do now. Sending enquiries to our Shareschemes mailbox will help us to deal with them swiftly electronically. But please bear in mind that confidential information sent via that mailbox is not secure and if you send such information to us by email you do so at your own risk. If you would like us to reply by email, please confirm in your message that you understand and accept the risks involved.

Finally, if you are making changes to correspondence or other contact details during the Olympic period, we would be grateful if you let us know about these as soon as practicable.

2. Consultation on the Office of Tax Simplification (OTS) recommendations on tax-advantaged employee share schemes

The Exchequer Secretary to the Treasury has announced the launch of a consultation on the recommendations made by the Office of Tax Simplification in its report on tax advantaged employee share schemes. The Ministerial statement can be found in Hansard publication of 27 June 2012 and the consultation document titled ‘Consultation: Office of Tax Simplification's report on tax advantaged employee share schemes’ can be found on the HMRCwebsite.

We would welcome responses to the questions set out in the consultation document. The consultation ends on 18 September 2012.

3. Enterprise Management Incentives (EMI)

At Budget 2012 the Chancellor announced that the EMI individual share option limit will be increased to £250,000. Statutory Instrument SI 2012 No. 1360 was laid before Parliament on 23 May 2012 to give effect to this increase. The change is effective from 16 June 2012 and applies to EMI options granted on or after that date.

It was also announced at Budget 2012 that the Government would consult on extending access to EMI for academic employees. A consultation document titled ‘Enterprise Management Incentives: extending access for academic employees’ was published on 27 June 2012 and can be found on the HMRC website. We would welcome responses to the questions set out in the consultation document. The consultation ends on 18 September 2012.

4. Section 430/431 ITEPA tax elections

Where shares or securities are acquired and there is a charge on their actual market value (taking into account any restrictions), subsequent charges will occur when:

• one or more restrictions expire by the passage of time;
• one or more of the restrictions are lifted; or
• the securities are sold.

The principle of the charge is that the previously untaxed portion of the security is charged to income tax upon the chargeable event. A section 430/431 election between the employer and the employee has the effect of ignoring some or all of the restrictions in determining the market value of the securities for the purposes of assessing the income tax chargeable.

Although section 431 elections are reportable on Form 42, these elections are not notified to HMRC at the time that they are made, and do not require HMRC's approval. Any elections made are retained by the employer.

We are sometimes asked whether these elections can be made electronically, and whether electronic signatures are acceptable. There is nothing in the legislation to prevent these documents being provided electronically or the use of e-signatures. However, any such elections must contain the prescribed wording and be made within certain time limits. Additionally, the employee must be made fully aware of the effect of entering into these elections before they do so. If asked by HMRC, the employer must be able to demonstrate that the employee has agreed to the making of the election and to provide a copy of the election itself.

5. Definition of Market Value in Share Incentive Plans

A share incentive plan which is approved by HMRC under Schedule 2 ITEPA 2003 must include an acceptable definition of market value of shares.

HMRC's policy and practice are set out in the Employee Share Schemes User Guide (ESSUM) at ESSUM29395. ESSU has recently been asked for, and has agreed to, an extension of its practice in relation to shares listed on a recognised stock exchange (as defined at section 1005 Income Tax Act 2007). It is now acceptable to define the market value of a listed share as the opening price on the specified market on the relevant day – normally, the dealing day immediately preceding the day in question – instead of using the mid-market price or closing price. Our practice in relation to market value is otherwise unchanged.

ESSUM29395 will be amended as soon as possible.

6. Other news of interest

You may also be interested in looking at the following information published recently on the HMRC and HM Treasury websites. If you have any comments or questions about these items then please contact the owners of those documents.

• Revised guidance was published on 25 June 2012 for employers providing share-based payments to former employees. This guidance takes precedence over the previous version.
• Statutory residence test. HM Treasury have published a summary of responses to the 2011 consultation. This document also sets out the Government's proposal to reform ordinary residence and contains draft legislation and further consultation questions. Responses are required by 13 September 2012.

Source: HMRC. www.hmrc.gov.uk. Copyright Acknowl-edged.