SIPS and SAYE schemes
A company may set up an approved share incentive plan (SIP) under which employees may allocate part of their salary to acquire up to a maximum of £1,500 of shares (known as partnership shares) in the employer company. Employers may also award free shares to employees up to a maximum of £3,000. Subject to various conditions, shares acquired under this approved scheme, which must be open to all employees, may be exempt from income tax and CGT.
With effect from April 2014, the annual limits will increase to £3,600 for free shares and £1,800 for partnership shares.
Increases in the limits have also been announced in respect of Save As You Earn schemes (SAYE). Under this scheme employees are granted options to acquire company shares in the future at today’s price. Contributions of between £5 and £250 per month are normally deducted from pay under an SAYE contract with a bank and the proceeds are used to pay for the shares with no income tax charge arising on the difference between the amount paid and the market value of the shares.
With effect from April 2014, the maximum monthly amount that an employee can contribute to SAYE will increase from £250 to £500.
As these schemes are designed for all employees they are not normally suitable for small owner managed businesses (SMEs) looking to incentivise key employees. Nevertheless, the increases in limits will be welcome for the large employers looking to reward their employees in a tax efficient manner.
Unapproved share schemes
The government will implement a package of simplifications proposed by the Office of Tax Simplification (OTS) on non-tax advantaged (unapproved) employee share schemes.
The OTS published a report on unapproved employee share schemes in January 2013. The report contained recommendations concerning the point at which income tax becomes due on employment-related securities (ERS); the tax treatment of ERS awarded to internationally mobile employees; the rules that apply for certain share exchange arrangements; corporation tax relief for employee share acquisitions; the valuation of shares; and employers’ information and PAYE obligations.
These changes will take effect during 2014.
For further information on the use of these schemes and the changes announced call the TaxDesk on 0845 4900 509 and ask for Martin Mann.