Alongside the withdrawal of the approval process for tax advantaged share-plans the rules on reporting transactions in employee shares have been revamped.
Transactions that took place in the year ended 5 April 2014 will still need to be reported on the existing paper forms, but for tax years starting on or after 6 April 2014 companies must comply with a new online reporting system.
The new reporting regime has two elements: registration of existing schemes and reporting transactions taking place under them.
The legislation also makes explicit provision for fines to be applied if companies omit to make filings and if they attempt to make filings using anything other than the online system.
Failure to register tax advantaged share schemes online can mean that their tax-favoured status will be lost.
Registering a share scheme on time will be critical to employers who operate one or more of the three tax-favoured plans set out in the legislation: Share Incentive Plans (“SIP”), Sharesave (also known as Save As You Earn or “SAYE”) and Company Share Option Plans (“CSOP”).
If an employer implements a new plan after 6 April 2014, awards under the plan will not benefit from tax relief unless the plan has been registered: employers have until 6 July following the end of the tax year in which awards are first made to register the plan.
Delaying registration will mean that awards made under the plan in the first year that it operates will not have tax-favoured status.
Employers who have schemes that were implemented before 5 April 2014, which were formally approved by HMRC, are still required to register their schemes online before the 6 July 2015 deadline. Failure to meet the deadline will have significant consequences for employers and employees:
- Awards made under SIPs and options granted under SAYE plans after 6 April 2014 will be treated as unapproved or non-qualifying, meaning that both employer and employees could be faced with income tax and NIC liabilities;
- Options granted under CSOPs, even if they were granted before 6 April 2014, will be treated as unapproved or non-qualifying, with the result that an income tax charge (and possibly NIC and PAYE withholding obligations) will arise when options are exercised.
In order for options to qualify for treatment as EMI options it is essential that HMRC is given notice when they are granted. There is a fixed 92 day window for this notice to be given; failure to notify HMRC in time will mean that options are not qualifying EMI options and that employees will not be entitled to claim the valuable income tax, NIC and CGT reliefs attaching to EMI options.
Until now, notice has been given on a paper form, EMI1, but for all options granted on or after 6 April 2014 it is no longer possible to use this form, instead notice will need to be given using the online system.
Before notices can be given, the EMI plan itself needs to be registered with HMRC; in effect, the registration deadline is accelerated for companies that grant EMI options in the current tax year, because of the requirement to give notice online of the grant of options.
Employers need to take a number of steps this year in the run up to the July 2015 filing deadline:
- Ensure that the company has access to HMRC’s online employment related securities portal and that their chosen agents have access to make filings too (we recommend that this is done early as it can take time for access and permissions to be granted by HMRC; the agent does not need to be the same person who acts as agent for the company’s other tax affairs);
- Identify any CSOP, SAYE and SIP plans that were approved before 6 April 2014 and which have not expired, with a view to ensuring that they are registered before the deadline;
- Register any EMI schemes under which the company is likely to make awards in the current year;
- Ensure that any EMI options that were granted on or after 6 April 2014 are notified to HMRC using the online system; and
- Review existing EMI grant documentation to ensure that it deals adequately with the new online notification process and the need to keep on file a declaration, signed by the employee, that the employee meets the conditions to be granted an EMI option.
If you have clients who have EMI plans or have operated “approved” share plans in the past it would be sensible to begin the conversation with them to ensure that they have given the appropriate person access to make online filings and to ensure that they know that they may need to register their EMI plans before 6 July 2015. If you do have any questions or need any assistance, please contact the TaxDesk on 0845 4900 509 and ask for Thomas Dalby or Martin Mann.