Share schemes

The Office of Tax Simplification (OTS) has published its final report on unapproved employee share schemes.

The report sets out a package of measures for simplifying this area of the tax system, including recommendations on the general taxation of unapproved share schemes, administration and internationally mobile employees.

The OTS recommendations stem from calls for a simpler, fairer tax system for share plans that do not qualify for tax advantages and are designed to make unapproved share schemes simpler for employees, employers and HMRC, so people get the most out of them, while ensuring they are correctly operated.

John Whiting, tax director for the Office of Tax Simplification, comments: 'We have spent a lot of time talking to the people that use the schemes, and found that whilst employers saw real benefits of offering share-based rewards, they had difficulties with managing the schemes within the tax rules.

'At the same time we have been very mindful of avoidance risks in this area. We think we have a balanced package of recommendations that will simplify processes, increase fairness and encourage employers to offer these ownership options without creating new avoidance opportunities.'

The key recommendations are:

• Create a “marketable” security – Instead of employees being taxed on the value of shares before they can sell them, the OTS recommend that employees are given the option of whether to pay tax on acquisition, or when the security can be sold for cash.
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  Alignment of tax for international assignees – to help those companies with international employees, the OTS recommend aligning the tax treatment of international assignees with the tax on other general earnings.
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  Creation of an employee shareholding vehicle – to encourage wider employee ownership, the OTS recommends an introduction of a vehicle to enable companies to better manage their employee share arrangements.
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  Simpler valuation of shares – to address the confusion and uncertainty with valuation, the OTS recommends increasing the availability of pre-transaction valuations, better provision of valuation information, and more flexibility for companies on non-recognised stock exchanges.
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  Administrative simplification – the OTS recommends simplifying PAYE deadlines and the main annual report, Form 42.

While these recommendations could be implemented separately, the OTS says that implementing the full package would provide the greatest benefit.

The OTS is also due to publish the final report on simplifying pensioner taxation later in January 2013.

The recommendations have been submitted to the Chancellor in advance of Budget 2013.