In late 2017, Her Majesty’s Revenue & Customs (HMRC) released two publications in relation to equity awards and in particular, tax-advantaged share schemes. Under the current rules, HMRC allows companies to offer four distinct tax-advantaged share plans subject to varying requirements: Company Share Option Plans (CSOP), Enterprise Management Incentives (EMI), Save-As-You-Earn (SAYE), and Share Incentive Plans (SIP).
The first publication provides updated statistics on how UK tax-advantaged share plans are used. Overall, the value of shares and options awarded under these schemes has been increasing, as have the tax savings for participants in these schemes. The total number of companies operating SAYE plans has increased, while the number of companies operating CSOP and SIP schemes generally has remained the same. At the same time, the total number of companies operating tax-advantaged schemes, in the United Kingdom, has decreased, primarily due to a decrease in the number of companies offering EMI schemes. A copy of the full HMRC report can be found here.
The second publication contains information on share plan registrations with incorrectly identified plan types, as well as information on common drafting errors HMRC has found in the rules of tax-advantaged share plans. HMRC continues to find plans newly registered on the Employment-Related Securities online system under the incorrect scheme type. The publication sets out how to correctly identify the scheme type. HMRC also emphasized that CSOP plans are often registered incorrectly as non-tax advantaged schemes and arrangements.
Regarding common drafting errors, HMRC continues to identify issues particular to certain types of tax-advantaged plans. Of particular importance is HMRC’s comment regarding CSOP plans. HMRC emphasizes that options granted under a CSOP plan must be granted by deed or for current/future consideration (past consideration is insufficient under UK law), so that employees acquire a legally binding right to acquire shares under the CSOP plan. Accordingly, HMRC may view a CSOP plan whose rules do not provide for grants by way of deed or current/future consideration as a serious error.
Other issues identified by HMRC included provisions relating to the exercise of options under SAYE and CSOP plans in the event of a change in control or other acquisition. Companies considering the establishment of a tax-preferential share scheme in the United Kingdom should review these new publications for helpful insights and guidance.