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:

• Employee shareholder 
• Guidance on Finance Act 2013 changes to tax advantaged share schemes 
• Revised SAYE prospectus 
• Valuation of shares on LTIP vesting 
• Employee ownership guidance 
• Quick Response to enquiries trial – summary review 
• Self-certification of employee share schemes 

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.

Employment-Related Shares & Securities Bulletin
Number 9	August 2013

Employee Shareholder

Employee shareholder is a new employment status, available from 1 September 2013. Employee shareholders will have different employment rights to employees, and will be awarded at least £2,000 of shares in their employer or parent company.

Finance Act 2013 provides tax reliefs for employee shareholder shares, and these will be available from the launch of the new employment status on 1 September. In summary:

Income Tax and NICS will usually not be chargeable on the first £2,000 of share value received by an employee shareholder.

There will usually be CGT exemption for £50,000 of shares received by an employee shareholder.

When an employer funds the costs of the independent legal advice received by a person considering an employee shareholder offer, this will not usually be a taxable benefit.

Businesses awarding employee shareholder shares may propose a share valuation to HMRC's Share and Assets Valuation team in advance of this award. Where possible, HMRC will agree this valuation for tax purposes, and this agreement will be effective for 60 days.

There is no requirement for businesses wishing to offer an employee shareholder contract to obtain HMRC approval or agreement before doing so.

Employers who have awarded employee shareholder shares should provide details on HMRC Form 42 (Employment-related securities). The form will be amended to include a new section relating to these share awards.

More detailed guidance on the tax treatment of employee shareholder status will be published on the HMRC website shortly.

Guidance on Finance Act 2013 Changes to Tax Advantaged Share Schemes

Finance Act 2013 made a number of changes to the tax advantaged share schemes following the recommendations made by the Office of Tax Simplification. In summary these changes include:

Removal of the statutory £1,500 annual dividend reinvestment limit for the Share Incentive Plan (SIP).

Greater flexibility around the share price to be applied for shares awarded during SIP accumulation periods.

Changes to the rules concerning retirement and tax advantaged early exercise of Save As You Earn (SAYE) and Company Share Option Plan (CSOP) options, or the withdrawal of shares from SIP.

Broad alignment of the 'good leaver' rules for SIP, SAYE and CSOP.

New tax advantages for SIP, SAYE and CSOP participants on certain cash takeovers of a company.

Removal of the prohibition of the use of certain restricted shares in SIP, SAYE and CSOP.

Removal of the material interest rules for SIP and SAYE, and alignment of the material interest percentage for CSOP and Enterprise Management Incentives (EMI) at 30 per cent.

EMI participants will now have 90 days following a disqualifying event to exercise EMI options with tax advantages.

Most of these changes are effective from Royal Assent to the Finance Act 2013 on 17 July. Detailed guidance on these changes will be published shortly.

Revised SAYE Prospectus

A new SAYE prospectus effective from 23 July 2013 has been issued to authorised SAYE savings providers. The prospectus has been updated to reflect the removal of the facility whereby savings could be held in SAYE for two years after the end of a five year savings contract.No changes have been made to the bonus rates applicable to three and five year savings contracts.

Valuation of Shares on LTIP Vesting

ERSM 220060 sets out HMRC's approach to the valuation of shares in cashless exercise situations involving options. It recognises that in some situations the sale of shares to cover the exercise price payable in respect of the option, and any tax and NIC due, may extend into the day following the exercise; and says that the actual sale price achieved may be taken as the market value of the shares at the time of exercise in this situation. It also says that, where there are a large number of sales extending over one or two days, the average sale price achieved may be taken as the market value of the shares acquired by each individual employee.

We have recently been asked whether this approach may also be adopted in situations not involving options, for example where large numbers of shares vest at the same time under an LTIP. ESSU and Shares and Assets Valuation are happy to confirm that the treatment set out in ERSM 220060 may also be applied in such situations. The ERSM will be updated as soon as possible to reflect this.

ERSM 220060 also makes clear that where sales of shares extend beyond Day 2 the statutory valuation approach in section 272 TCGA 1992 needs to be followed. There is no change to HMRC's position in this respect.

Employee Ownership Guidance

In July 2012 the Government's independent adviser on Employee Ownership, Graeme Nuttall, produced a report: 'Sharing success: the Nuttall Review of Employee Ownership'. New HMRC guidance on employee ownership has recently been published, following the implementation of certain recommendations of this report.

Quick Response to Enquiries Trial – Summary Review

The quick response to enquiries four month trial announced in Bulletin No.6 started on 14 January 2013. It was set up following feedback that customers sometimes need a quick response to enquiries in relation to the tax advantaged share schemes. The terms of the quick response trial were agreed with members of the Tax Advantaged Shares Schemes sub-group and published in Bulletin No.6.

During the trial we received only a small number of enquiries that met the 'quick response' arrangement criteria. Those enquiries that met the criteria were replied to within the agreed deadlines.

Based on the take up and results of the trial arrangements, as well as the significant improvement in our overall turnaround times, we do not consider it necessary to offer this arrangement on a permanent basis for now. We are grateful to all those who helped to set up the arrangements and submitted enquiries.

Self-certification of Employee Share Schemes

As part of our work to develop self-certification and online filing arrangements for SIP, SAYE and CSOP, we are visiting a number of companies and scheme administrators who have kindly offered to show us how they process employee share scheme information. This is enabling us to develop a better understanding of how share plans are administered by customers, which is being reflected in our development of the proposed new arrangements.

Our aim is to move away from the current approach which requires customers to provide detailed information about their employee share schemes on paper forms. Our proposed approach will allow customers, if they wish, to complete the online form as transactions take place, and will be focused on the collection of information that adds greatest value to HMRC's compliance activity. Initial details on the proposed self-certification and online filing process were set out in Bulletin No.8, and further updates will follow in due course.

Source: HMRC. www.hmrc.gov.uk. Copyright Acknowledged.