Share plans - new registration and online filing regime in the UK
As mentioned in our previous update, the new registration and filing regime for share plans came into force on 6 April 2014. In summary:
- All companies that grant share options or other share incentives to their UK employees will need to register their plans with HMRC by 6 July 2015 at the latest
- Specific HMRC approval will no longer be required for tax-advantaged plans
- Tax-advantaged plans will have to be self-certified as meeting the relevant requirements and there is a new enquiry and penalty regime
- From 6 April 2014, all EMI option grants have to be notified to HMRC online
- Annual share plan filing to move online for the 2014-15 tax year
Although there will inevitably be some teething problems while companies and advisers get used to the new regime, the changes should make it easier for companies to operate share plans in the UK. Further information on the new regime is set out below.
What is the registration process?
The new online registration process applies to all share plans involving UK employees, both tax-advantaged and non tax-advantaged. Registration is necessary in order to facilitate the annual online filing for the 2014-15 tax year, and therefore any plan in respect of which there will be a reportable event for that year will need to be registered by 6 July 2015. The registration is made through HMRC’s existing PAYE online service, so companies that are not already registered for PAYE online will need to do so. Plans can be registered using the PAYE reference number of any group company.
Companies intending to grant tax-advantaged EMI options after 6 April 2014 will have to complete the registration process before making any new option grants (see further below).
How do companies register different plans?
Companies that operate tax-advantaged share plans, such as Company Share Option Plans (CSOP), Share Incentive Plans (SIP), Savings Related Share Option Plans (SAYE) or Enterprise Management Incentive plans (EMI), will need to register those plans individually.
However, HMRC has confirmed that companies can make one registration to cover all of their non tax-advantaged arrangements. This may be preferable for some companies given that an annual return will be required in respect of each separately registered arrangement.
Which plans will self-certification apply to?
The new self-certification regime will apply to CSOPs, SIPs and SAYE plans. 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?
CSOPs, SIPs and SAYE plans will no longer require specific approval from HMRC. Instead, companies operating such plans will need to make a declaration that the plan meets the relevant legislative requirements. The first declaration will be part of the online registration process. Therefore, plans already in existence at 6th April 2014 will need to be self-certified by 6th July 2015, and new plans by the 6th July in the tax year following that in which the plan was first operated. If a company makes an amendment to a ‘key feature’ of a plan, it will need to make another self-certification declaration in the annual return for the year in which the amendment was made.
Enquiry and penalty regime
There is also a new enquiry and penalty regime so that HMRC can ensure that tax-advantaged plans are being operated correctly. There are two levels of penalty that HMRC can impose. For less serious breaches of the requirements, 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 withdraw the tax-advantaged status of the plan and impose a fine of up to 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.
It is assumed that serious breaches will mainly be those 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.
HMRC has confirmed that if a plan was previously approved by HMRC before 6th April 2014, it will not raise enquiries into whether the plan satisfies the legislative requirements. This provides comfort to companies and advisers that they do not have to re-examine existing plans for compliance in order to self-certify them.
What are the annual return filing requirements?
Companies that operate share based incentive plans for their UK employees are required to file an annual return by 6 July after the end of the relevant tax year. However, 2014 is the last year that annual returns will be filed in paper form. For the 2014-15 tax year and thereafter, annual returns will need to be filed online. A plan will first need to be registered before the annual return can be filed. HMRC has published templates to assist companies with completing the annual return (see below under Resources).
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 form that is also signed by the employee. The new rules do not change the requirement to notify the grant of EMI options, but from 6 April 2014 it will 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 (HMRC has confirmed that this can be part of the option agreement). There is no need to file the declaration with HMRC, but it must be produced to HMRC within 7 days of it being requested.
What are the next developments?
HMRC has been updating its guidance on tax-advantaged plans to take into account the self-certification regime and other recent legislative changes. As there are many HMRC requirements that are not specifically referred to in the legislation, the guidance will be an important resource for companies and advisers who need to self-certify tax-advantaged plans. HMRC has stated that it will be publishing the updated guidance in July 2014.
What should companies be doing?
As most of the changes (except in relation to EMI notifications) do not come into effect until 2015, companies will have plenty of time to take the necessary actions. HMRC has also produced a lot of practical guidance both through specific communications to companies and through their regular bulletins (see below under Resources). The key actions for companies will be:
- ensuring that the company is registered for PAYE online and has access to the employment-related securities service
- registering any relevant plans with HMRC sufficiently in advance of 6 July 2015 to enable the online annual reporting to be completed
Many companies operating tax-advantaged plans may wait until later in the year before registering and self-certifying those plans, once all of the relevant guidance has been published. Companies may also be considering whether to update their CSOP, SIP and SAYE rules to reflect the other legislative changes over the last couple of years.
How can we help?
We can assist with all aspects of the registration, self-certification and annual filing regime. We have agent access to the HMRC employment-related securities service so we will be able to carry out annual return filings and EMI option grant notifications on a company’s behalf.
Tax-advantaged 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 (see our previous update). If you are considering implementing a tax-advantaged plan we can assist with:
- advising which plan would best suit your requirements
- confirming whether the 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
For further information please contact Jonathan Fletcher Rogers on 0203 051 5711.
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