Draft clauses for inclusion in the Finance Act 2016 were published on 9 December 2015.
These make a number of minor amendments and corrections to the legislation as follows:
Share Incentive Plans (SIPs): “disqualifying events”
When, in 2014, changes were made to the share incentive plan rules in ITEPA 2003 Schedule 2 substituting, for the requirement to obtain prior HMRC approval of a plan, the new “registration” regime, the draftsman put his “red pen” through rather more of the legislation than was intended. In particular, the provisions defining events which would have led to the plan ceasing to qualify for tax benefits were omitted. This having been pointed out to HMRC, the opportunity is now being taken to put them back in a modified form, albeit only in relation to disqualifying events occurring after Royal Assent of the Finance Act 2016. A share incentive plan will then cease to be a qualifying Schedule 2 share incentive plan if either: (a) an alteration is made to the share capital of the plan company or to the rights attaching to any shares of that company (not necessarily the plan shares) which materially affects the value of the plan shares; or (b) the plan shares receive treatment as regards dividends, repayment, or any offer of new or additional shares or rights, which differs in any respect from other shares of that class. The latter fetter upon the ability to, for example, make offers to different classes of share incentive plan participants (e.g. management and other employees) on different terms may give rise to difficulties when, structuring certain corporate transactions such as management buy-outs of a company with a share incentive plan.
Failure to register a qualifying plan with HMRC: reasonable excuse
New rules having effect from 6 April 2016 introduce provision for a company to argue that a plan should not fail to qualify for tax reliefs if there was a “reasonable excuse” for the failure to notify HMRC of (i.e. register) the plan by 6 July in the tax year after that in which the first award is made. What is, and is not, a “reasonable excuse” is the same as for the failure to make a timely annual return. A company may appeal to the Tribunal against a decision of HMRC that there was no “reasonable excuse”.
Company Share Option Plans (CSOP) and Save as Save as you Earn (SAYE) share option schemes: the time by reference to which “market value” is agreed with HMRC
As from Royal Assent, the “market value” of shares is, for the purposes of granting options under such qualifying schemes, to be, or to be agreed with HMRC Shares and Assets Valuations to be, such value either as at the time of grant or as at such earlier time as may be determined in accordance with guidance issued by HMRC. This confirms that quoted and non-UK companies will still be able to grant options with an exercise price fixed by reference to “market value” determined by reference to the price of a share on a given day, or taken as the average of prices over a given period of generally not more than five dealing days (beginning not in any event earlier than 30 days prior to the date of grant or, in the case of SAYE options, 42 days if there is a need for “scaling down” of option shares).
Changes to the tax treatment of certain employment-related securities options—including, in particular, US-style “restricted stock units”
As from 6 April 2016, the provisions of ITEPA 2003 s.418 are amended so as (it is intended) to put beyond doubt that the acquisition of shares upon the exercise of an employment-related right to do so falls to be taxed only under the rules relating to the exercise of employment-related securities options and not also the provisions relating to the taxation of earnings in ITEPA 2003 Pt 4. This should simplify the tax treatment of, in particular, US-style restricted stock units.
Pett, Franklin & Co. LLP are experts in employee share schemes, share plans and executive incentives. To find out how we can help you, call David Pett on 0121 348 7878 or email David at email@example.com.