The UK government has now published further details on how the new ‘self-certification’ regime for HMRC approved share plans will work. Although initially it may take some time for companies to get used to the new rules, ultimately they should make it much simpler and quicker to put in place an HMRC approved plan. However, the self-certification regime does come with some additional risk for companies if their plans do not comply with the legislative requirements. The legislation is still in draft so it may change before it comes into effect on 6 April 2014.
Which plans will self-certification apply to?
The new self-certification regime will apply to HMRC approved Company Share Option Plans (CSOPs), Share Incentive Plans (SIP) and Savings Related Share Option Plans (SAYE). Enterprise Management Incentive (EMI) plans will not be subject to the same regime, but there will be changes to the notification requirements for EMI options (see below).
How will self-certification work?
CSOP, SAYE and SIP plans will no longer require specific approval from HMRC. Instead, companies operating such plans will need to make a notification to HMRC which includes a declaration that the plan meets the relevant legislative requirements. For new plans, this notification will need to be made by the 6th July in the tax year following that in which the plan was first operated. Plans already in existence at 6thApril 2014 will need to be notified by 6th July 2015. The notification ties in with the new online annual reporting regime that is being implemented from 2015.
What are the consequences of a plan not meeting the requirements?
HMRC will have until 6th July in the tax year following that in which the notification deadline fell to raise an enquiry in relation to a plan that has been notified to them. Therefore, for plans required to be notified by 6th July 2015, HMRC would have until 6th July 2016 to raise an enquiry. However, HMRC will also have a general power to enquire into a scheme at any time if it has reason to believe that the legislative requirements are not being met.
If, following an enquiry, HMRC determines that the legislative requirements are not met, employees who have participated in the plan will still enjoy the tax benefits. However, the consequences for the company operating the plan are potentially very costly. In the case of breaches that are not considered by HMRC to be ‘serious’, HMRC may impose a fine of up to £5,000 and instruct that any breaches are remedied within 90 days. However, for serious breaches, HMRC may impose a fine of twice the estimate of the total income tax and National Insurance contributions which participants have not had to pay as a result of participating in the plan.
HMRC will no doubt be producing guidance on what breaches would be considered sufficiently serious for them to impose this penalty, and we assume they will mainly be those breaches that are incapable of being remedied. One such example would be where the company operating the plan does not (and cannot) itself meet the relevant requirements. Despite the benefits of self-certification, the potential penalties may deter some companies from putting in place HMRC approved plans.
What changes are there to the EMI notification requirements?
Currently the grant of an EMI option needs to be notified to HMRC within 92 days of grant on a specified form that is also signed by the employee. The new rules do not change the requirement to notify the grant of EMI options, but it will now have to be done electronically. An optionholder will no longer need to sign the notification form, but will be required to sign a separate declaration that is kept by the employer. This declaration will have to be produced to HMRC within 7 days of it being requested. These new rules will take effect on 6 April 2014.
Do companies need to make changes to their existing HMRC approved share plans?
The draft legislation includes certain other changes to the requirements for approved plans. These include consequential changes as a result of the self-certification regime and some other changes recommended by the Office of Tax Simplification. Therefore, companies should ensure that any existing plan rules are reviewed and amended to reflect the new requirements. Changes will also need to be made to any participant documentation.
What are the next developments?
HMRC has said it will publish detailed guidance on various aspects of the legislative requirements so that companies will have sufficient certainty as to their compliance. We would expect the first draft of this guidance to be published in the coming weeks. There may also be changes to the legislative provisions as they make their way through the parliamentary process.
How can we help?
If you currently operate an HMRC approved share plan we can assist in reviewing your existing plan and confirming what changes are required to comply with the new legislation.
HMRC approved share plans are likely to become ever more popular with companies as a result of the new simplified regime and the recently announced increase in the participation limits. If you are considering implementing an HMRC approved plan we can assist with:
- advising which plan would best suit your requirements
- confirming whether your company is eligible
- drafting the plan rules and associated documentation
- confirming compliance with the HMRC requirements for the purposes of the self-certification regime
- drafting participant communications including tax advice
- assisting with the HMRC annual filing requirements
For further information or to discuss the issues raised, please get in touch.
Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this article. For further legal information click here.
If you would like to copy or otherwise reproduce this article then you may do so provided that: (1) any such copy or reproduction is for your own personal use or if it is made available to any third party it is done so on a free of charge basis; and (2) the article is reproduced in full together with the contact details, disclaimer and any logos as they appear on each article.