Supporting guidance: employer compliance guidance by subject: employment related securities: penalties: effective date of decision
If HMRC decides to withdraw the tax advantaged status, the plan ceases to be tax advantaged from
- the date specified in the closure notice or
- where no date is specified, the date of the closure notice.
In the majority of cases the plan ceases to be tax advantaged from the date of the closure notice.
HMRC will not usually decide to stop a company’s tax advantaged use of a scheme from a date earlier than the date of the closure notice. If HMRC were to backdate the effective date and collect income tax and NICs which would become due, the employees will be prejudiced. For example:
- the company could recover the amount due from employees because of standard indemnity clauses in schemes, and
- employees would have become liable for a mistake made by their employer.
Instead, HMRC will charge the company a penalty for at least an equivalent amount of the total of the income tax and NICs that would have been payable if the scheme had not been operated in a tax advantaged way during the period between the date when the serious error commenced and the date of the closure notice.
However, it may be appropriate that the effective date of the decision should be earlier or later than the date of the closure notice. For example:
1. Where the effective date of the decision is shortly before or after the date of the enquiry closure notice
In this case it is important that the effective date specified on the closure notice is after the last date on which awards or options were granted. This will ensure that the tax advantaged status of these awards is maintained. A penalty may be charged to cover the period from the date of the error to the date specified in the closure notice.
The amount of tax and NICs that would have been payable is the estimated income tax and NICs accruing in the period between the date the serious error commenced and the date specified on the enquiry closure notice.
2. Where the effective date of the decision is the date of the serious error
In exceptional circumstances HMRC may apply its decision from the first date that the serious breach occurred. An example where HMRC might consider this is where the tax advantaged share scheme is a discretionary scheme (CSOP) and the only recipients of the share options are directors of the company. In these circumstances, it may be appropriate to seek payment of the income tax and NICs that would have been due. This would mean that the directors’ awards or options which were granted after the serious error occurred and before the closure notice was issued will not be tax advantaged.
If you think these circumstances apply, you must refer your case to ESSU using the mailbox Shareschemes, SPT (Specialist PT ESSU) who will make the decision.