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. Amendments to rules to reflect automatic changes under FB13
2. Review of new schemes drafted to take account of changes in Finance Bill 2013
3. S431 elections in CSOP scheme rules
4. SIP - termination of a plan
5. SAYE seven year contract prospectus change

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. Amendments to Rules to Reflect Automatic Changes Under FB13

On 11 December 2012, HMRC published draft legislation setting out a number of proposed changes to the provisions on tax-advantaged employee share schemes (Schedules 2 to 5 ITEPA 2003). Subject to the outcome of this consultation, these clauses will be included in the Finance Bill and will come into force at such time as the Bill becomes law. Many of these changes will, if enacted, apply to existing Share Incentive Plans, Save As You Earn (SAYE) option schemes and Company Share Option Plans without the need for further action by companies. If, nevertheless, companies choose to amend their schemes solely to reflect the new legislation, then those alterations do not require HMRC's prior approval, notwithstanding that these may be alterations to a “key feature” of the scheme or plan. Any other changes will need to be made in accordance with the rules of the scheme or plan and the appropriate Schedule of ITEPA 2003 in the usual way.

2. Review of New Schemes Drafted to Take Account of Changes in Finance Bill 2013

We have received a number of requests for new schemes to be reviewed on the assumption that the proposed changes in the draft Finance Bill 2013 will come into force. HMRC is not in a position to approve scheme rules against draft legislative provisions. Therefore, where a scheme is submitted to HMRC for approval and its proposed rules are based on the draft legislation, this will not be reviewed and commented on by HMRC until after the Bill is published. Finance Bills are published after the First Reading of the Bill in Parliament following the Budget statement which this year will be on 20 March 2013.

3. S431 Elections in CSOP Scheme Rules

If shares are acquired pursuant to options under an approved CSOP scheme and an income tax liability arises under Section 476 (for example when options are exercised within three years of grant for a non-good leaver reason), there is no exemption from any potential post-acquisition charges that might apply under Chapter 2 of Part 7 ITEPA 2003. Some employers have sought to include within their CSOP rules a requirement that employees enter into a section 431 election on the exercise of the option. Such an election would have the effect of ignoring some or all of any restrictions applied to shares when determining the chargeable amount under Chapter 5 of Part 7.

Up until now HMRC has only accepted the inclusion of this requirement in CSOP rules if a relevant restriction applies to the shares offered under the CSOP option.

However, in view of other changes arising from the recommendations of the Office of Tax Simplification we have agreed to reconsider our position. We will in future accept CSOP scheme rules which include a requirement for the participant to enter into a section 431 election if there are any restrictions applying to the scheme shares at the time when they are acquired.

4. SIP - Termination of a Plan

Companies that decide to discontinue offering an HMRC approved SIP are sometimes unsure of the process for terminating the plan. They are advised to follow the guidance set out in the Employee Share Schemes User Guide at ESSUM29200.

Additionally, the requirement to complete the annual SIP return on Form 39 will continue until the shares held in a SIP trust for employees have been withdrawn.

5. SAYE seven Year Contract Prospectus Change

Under SAYE option schemes, it is currently possible for employees who have completed five year SAYE contracts to retain their savings within the scheme for a further two years. The Government announced in December 2012 that this seven year feature of SAYE would be removed. Further details can be found at Summary of Responses document published in December 2012.

This change will be made by amending the terms of the SAYE prospectus. Attached is a specimen prospectus with the proposed changes highlighted in red text. Any comments on these proposed changes should be sent to Shareschemes@hmrc.gsi.gov.uk. The intention is to withdraw the seven year feature of SAYE, alongside the implementation of other changes to the tax advantaged schemes later this year.