Overhaul of unapproved share scheme tax rules recommended
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
The tax complexities involved in using 'unapproved' employee share schemes need significant reform the Office of Tax Simplification (OTS)
The OTS recommendations stem from extensive discussions with business, employees and tax authorities and answer calls for a simpler, fairer tax system for share plans that do not qualify for the tax advantages. The recommendations make the tax rules for so-called unapproved share schemes simpler for employees, employers, and HM Revenue & Customs alike, so people get the most out of them, whilst ensuring they are correctly operated.
Following a one year review, the key recommendations are:
- Create a “marketable” security - Instead of employees being taxed on the value of shares before they can sell them, the OTS recommend that employees are given the option of whether to pay tax on acquisition, or when the security can be sold for cash.
- Alignment of tax for international assignees - to help those companies with international employees, the OTS recommend aligning the tax treatment of international assignees with the tax on other general earnings.
- Creation of an employee shareholding vehicle - to encourage wider employee ownership, the OTS recommends an introduction of a vehicle to enable companies to better manage their employee share arrangements.
- Simpler valuation of shares - to address the confusion and uncertainty with valuation, the OTS recommends increasing the availability of pre-transaction valuations, better provision of valuation information, and more flexibility for companies on non-recognised stock exchanges.
- Administrative simplification - the OTS recommends simplifying PAYE deadlines and the main annual report, the Form 42.
Whilst these recommendations could be implemented separately, the OTS feel that implementing the full package would provide the greatest benefit.
John Whiting, Tax Director for the Office of Tax Simplification said:
The current share schemes tax legislation is a tangle of complexity. It creates costs and pitfalls for companies and employees, and significant burdens for HMRC.
We have spent a lot of time talking to the people that use the schemes, and found that whilst employers saw real benefits of offering share-based rewards, they had difficulties with managing the schemes within the tax rules. At the same time we have been very mindful of avoidance risks in this area. We think we have a balanced package of recommendations that will simplify processes, increase fairness and encourage employers to offer these ownership options without creating new avoidance opportunities.
During the review the OTS gathered evidence from meetings, surveys and road shows throughout the UK, giving employers, professional advisers, and representative bodies a chance to contribute to the review.
This final report with recommendations has been published on the website: http://www.hm-treasury.gov.uk/ots.htm. This review follows the previous report published in March 2012 which set out recommendations for tax advantaged share schemes. Separately, the OTS is due to publish the final report on simplifying pensioner taxation later in January 2013.
Notes for Editors
- The full final report on unapproved share schemes can be found here - http://www.hm-treasury.gov.uk/ots.htm
- The OTS carried out a review of “tax approved” share schemes in 2011-12. The majority of the recommendations from that review have been taken forward by the Government and, following consultation, are mostly in this year’s draft Finance Bill. These include self-certification for all types of tax advantaged plan, online filing and alignment of the retirement rules.
- The OTS started its work in September 2010 and initially took forward two reviews: tax reliefs and the first stage of small business taxation (which focused on the IR35 review). Since then, the OTS has issued a further report on the review of small business, which made recommendations for a simpler tax system for the very smallest businesses, a disincorporation relief and many administrative improvements; it is currently carrying out a review of pensioner taxation due to report later this month. More on the OTS reviews can be found here: http://www.hm-treasury.gov.uk/ots.htm
- The OTS team is led by Chairman Rt Hon Michael Jack, and Tax Director John Whiting and has a staff drawn from HM Treasury, HM Revenue & Customs and secondees from the private sector. Details and biographies are available on the OTS website.
- The independent Office of Tax Simplification was established on 20 July 2010 to carry out reviews in order to provide expert advice to the Chancellor on options to improve and simplify the UK’s tax system.
Issued by Office of Tax Simplification Press Office
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OTS Press Officer
Phone: 020 7147 0052 / 07917 598392
Published: 16 January 2013
From: HM Treasury