The UK Government has confirmed how it plans to simplify and harmonise the four Revenue-approved share plans: company share option plan (CSOP), enterprise management incentives (EMI), SAYE option scheme and share incentive plan (SIP). Draft legislation has been published to take effect in the summer of 2013.

Reprieve for CSOP

The proposal to phase out the CSOP or merge it into a hybrid with the EMI scheme, has been dropped. This is particularly good news for companies that use this discretionary plan on an “all-employee” basis.

Convergence

One of the key issues with the different approved plans has been the different requirements that apply to basic issues like how to deal with participants who leave the company and what sort of shares can be held. The reforms will bring welcome harmony across the range of plans so that in future it should be much easier to work out what a participant is entitled to. Generally speaking, it is a levelling up – best in class will apply across the board.

An area that has caused frustration and confusion is the different approach taken to leavers. For example, the rules relating to what happens on retirement in each plan have not kept up with changes in wider practice. Companies will in future be free to align their plans to their general policy in this area, making sure that the way the plans are used does not fall foul of the age discrimination rules.

The same approach is being taken to other “good leaver” situations. This is good news for holders of CSOP and SAYE options whose rights will be brought into line with SIP rules which guarantee rights of exercise where a participant leaves employment because of death, injury, disability, redundancy or because the business or subsidiary by which the participant is employed is sold out of the grantor company’s group. Participants will be able to receive their shares tax free on retirement provided the retirement is genuine and not just for the purposes of the plan.

Further detailed changes are proposed to the way the plans operate.

These will bring welcome flexibility and additional tax benefits, for example on a takeover where options are exercised “early”.

Automatic updating of plans

Any CSOP, SAYE scheme or SIP approved before the day the changes come into force next summer of 2013 will automatically be deemed to have some of the amended provisions incorporated into them. However, some of the changes are permissive rather than compulsory so all companies will need to review their plan rules.

Employee communications

Companies will need to look at how to communicate the changes to employees, especially where participants will get enhanced rights. This may be an opportunity to take a fresh look at how plans are promoted to staff to ensure that the benefits of participation are understood.

This process should be made easier by new guidance from HMRC guidance to make it clear that it is acceptable to provide information about plans and awards to employees electronically or through a secure website. Overall the changes to the UK’s tax-advantaged share plans are to be welcomed. The Government has taken on board most of the changes proposed by the Office of Tax Simplification earlier this year, at least where these can be implemented without loss of tax revenues.