From redefining ‘disqualifying events’ for Share Incentive Plans (“SIP”) to HMRC considering reasonable excuses for failure to notify them of the establishment of SIP, SAYE and CSOP plans, the Finance Act 2016 resulted in a number of changes to the share schemes legislation.
SIPs : ‘Disqualifying Events’
The changes made in 2014 inadvertently had the consequence of meaning that certain circumstances which would have been disqualifying events such as, for example, the differential treatment of shares of the class awarded under a SIP or an alteration being made to the company’s share capital or the rights attaching to any shares in the plan company that materially affected the value of the plan shares, ceased to be ‘disqualifying events’. These provisions have now been restored, but only in relation to events happening after 15th September 2016. The absence of such provisions has enabled a number of corporate reorganisations and restructurings to take place in the past two years without prejudicing the tax-favoured status of a SIP.
SIPs, SAYE and CSOP options – failure to notify the scheme to (register with) HMRC
A company will now have the opportunity to put forward a ‘reasonable excuse’ for failure to give notice to HMRC of the establishment of a SIP, SAYE scheme or CSOP (as opposed to a failure to submit an annual return, in relation to which such provisions already exist) by 6th July in the tax year next following that in which the first awards were made. When asked to consider a ‘reasonable excuse’, HMRC have 45 days in which to respond but, if they do not, are to be taken to have determined there was no such reasonable excuse. The company may then appeal against that decision to the Tribunal.
Definition of ‘Market value’ for SAYE and CSOP option grants
A change to the rules relating to the exercise price set in relation to SAYE and CSOP options makes clear that, in the price may be set by reference to the ‘market value’ of the shares as at the time when the option is granted or such earlier time or times determined in accordance with HMRC guidance. This allows plan rules to provide that, in the case of companies whose shares are listed on a recognised stock exchange, the exercise price may be set by reference to an average of the mid-market closing prices over a period of up to 5 dealing days, which, in the case of a plan using an ‘invitation and acceptance’ procedure, is not earlier than 30 days (42 if there is need for a ‘scaling back’) prior to the date of grant the date of grant, or otherwise ending with the day preceding the date of grant.
Shares listed on a foreign recognised stock exchange
In relation to shares listed on an overseas recognised stock exchange, the Market Value of Shares, Securities and Strips Regulations 2015 (SI 2015/616) provides that the market value of securities so listed, but not shares, be taken to be their mid-market closing price. Nevertheless, HMRC appears to accept that the market value of shares listed on a foreign recognised stock exchange may, for the purposes of a tax-favoured qualifying scheme, be taken as the mid-market closing price (see, for example, ETASSUM 2340 in relation to Share Incentive Plans).
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