Two major changes have been introduced with effect from the tax year ending 5 April 2015 and later years which affect employee share plans operated in relation to employees in the UK. Any company with share plans which benefit employees resident in the UK for tax purposes will need to address these changes.
The first of these changes is that from 6 April 2014 the system under which tax-advantaged share plans were “approved” by HM Revenue and Customs (HMRC) was discontinued and replaced with an online selfcertification system. The second is that all annual reporting for share plans (and notifications of the grants of enterprise management incentive (EMI) options) must be made online for the tax year ending 5 April 2015 onwards (and plans need to be registered first). These changes are considered in more detail below.
For affected companies, action needs to be taken by no later than 6 July 2015.
Self certification of “approved” share plans
The share plans affected by this measure are the former “approved” plans: company share option plans (CSOPs), SAYE option schemes and share incentive plans (SIPs). Before 6 April 2014, companies wishing to implement a CSOP, SAYE option scheme or SIP had to apply to HMRC in advance for formal approval of the scheme, and HMRC’s approval of any amendment to a “key feature” of the plan was also required. This paternalistic system, much liked by companies because of the certainty it gives, has now been replaced as part of a simplification of the tax system (and presumably also because of cost factors).
From 6 April 2014 a company that operates a SIP, SAYE option scheme or CSOP must give notice of the scheme to HMRC. The notice must provide such information as HMRC may require, and contain a declaration that the plan meets the relevant requirements set out in the Income Tax (Earnings and Pensions) Act 2003 - the “self-certification” requirement.
Existing plans. For plans which were HMRC approved immediately before 6 April 2104, the notice must be given by 6 July 2015. The declaration must state that, if awards were made prior to 6 April 2014, the plan has met the requirements since that date (since the date the first awards were made, if after that date). HMRC has recently (February 2015) stated that a plan which was approved immediately before 6 April 2014 can be treated as meeting the relevant requirements from that date, provided that no change has been made to a “key feature” of the plan since approval, and the plan has been operated in accordance with the plan’s rules and the relevant legislation since that date.
However, where, for a pre-6 April approved plan, no awards have been or will be made on or after that date, the notification and declaration does not need to be given (although an annual return will still be required – see below).
New plans. For plans which were established on or after 6 April 2014, the notification and selfcertification needs to be given by 6 July following the end of the tax year in which the first awards were made. Whilst there is no longer a formal process for ensuring that the rules of such plans comply with the legislation, HMRC will still give guidance on an informal basis as to the interpretation of the legislation in the context of drafting plan rules.
Online notification and annual returns
The following must now all be done online:
- notifications and certifications of tax-advantaged plans (as referred to above);
- notification of the grant of EMI options made on or after 6 April 2014 (this used to be done on a paper form);
- filing of annual returns for both tax-advantaged and non-tax-advantaged plans for the tax year ending 5 April 2015 onwards (again, this used to be done on a paper form);
- registration (notification) of non-tax-advantaged plans (to facilitate online annual reporting for these plans and notification of EMI options).
All these actions must be done via HMRC’s Employment-Related Securities online service (ERS online). This service has been developed by HMRC as an “add on” to PAYE online. Companies that already have access to PAYE online will already be able to view ERS online.
Companies that do not have access to PAYE online will need to register by visiting HMRC and following the instructions to register themselves for PAYE. To register, the company’s PAYE and Accounts Office reference will be required. Once registered, an activation code is sent to the company address HMRC has on file for PAYE purposes. On receipt, the activation code is entered online and the company is ready to use ERS online.
Although it is possible for a company’s agent to file annual share scheme returns, agents cannot register CSOPs, SAYE option schemes or SIPs or certify that they meet the requirements of the legislation. This is the relevant company’s responsibility.
Templates for annual returns
HMRC has now published updated templates for the annual returns, which can be found here. The completed forms for the year to 5 April 2015 can be filed using the ERS online system from 6 April 2015.