Current tax law on share plans is a tangle of complexity and throws up ‘unnecessary barriers’ for companies looking to implement share plans for their employees, according to the Office for Tax Simplification.
The OTS has set out six key recommendations in Review of unapproved employee share schemes: Final report, reflecting the need for ‘a thorough overhaul, not minor tweaks’, to employee share schemes and share-based incentives that do not benefit from tax advantages:
1. Fundamental reform of the taxation of employment-related securities, aligning it more closely with the taxation of general earnings. The default position would be that ‘no tax charge arises until the security can be sold for cash’.
2. Alignment of the tax treatment of international assignees with the taxation of general earnings.
3. Introduction of an ‘employee shareholding vehicle’ to enable companies to manage employee share arrangements and create a market for employees’ shares.
4. Reducing the amount of information required on form 42, and integration of the form into the real time information system in the longer term.
5. Extending the PAYE deadline from 14 to 60 days after the end of the tax month for all employment-related securities.
6. Several complementary recommendations relating to valuation, including increased availability of pre-transaction valuations in certain circumstances, better provision of valuation information and more flexibility for companies on non-recognised stock exchanges.
Philip Fisher, head of the employment tax and rewards team at PKF and a member of the OTS’s share schemes consultative committee, said: ‘The proposals represent a major improvement over the current system. Moving the tax point to the time when shares can be sold protects employees and should give a major boost to employee share ownership, which is something that the government has been keen to promote.’
Employees who expected their shares to increase in value and were willing to take a commercial risk could still pay tax on the old basis, Fisher said.
‘The big question is whether the government will be willing to take a brave step that will undoubtedly represent a major simplification to very complex legislation. I certainly hope so.’
Current tax law on share plans is a tangle of complexity and throws up ‘unnecessary barriers’ for companies looking to implement share plans for their employees, according to the Office for Tax Simplification.
The OTS has set out six key recommendations in Review of unapproved employee share schemes: Final report, reflecting the need for ‘a thorough overhaul, not minor tweaks’, to employee share schemes and share-based incentives that do not benefit from tax advantages:
1. Fundamental reform of the taxation of employment-related securities, aligning it more closely with the taxation of general earnings. The default position would be that ‘no tax charge arises until the security can be sold for cash’.
2. Alignment of the tax treatment of international assignees with the taxation of general earnings.
3. Introduction of an ‘employee shareholding vehicle’ to enable companies to manage employee share arrangements and create a market for employees’ shares.
4. Reducing the amount of information required on form 42, and integration of the form into the real time information system in the longer term.
5. Extending the PAYE deadline from 14 to 60 days after the end of the tax month for all employment-related securities.
6. Several complementary recommendations relating to valuation, including increased availability of pre-transaction valuations in certain circumstances, better provision of valuation information and more flexibility for companies on non-recognised stock exchanges.
Philip Fisher, head of the employment tax and rewards team at PKF and a member of the OTS’s share schemes consultative committee, said: ‘The proposals represent a major improvement over the current system. Moving the tax point to the time when shares can be sold protects employees and should give a major boost to employee share ownership, which is something that the government has been keen to promote.’
Employees who expected their shares to increase in value and were willing to take a commercial risk could still pay tax on the old basis, Fisher said.
‘The big question is whether the government will be willing to take a brave step that will undoubtedly represent a major simplification to very complex legislation. I certainly hope so.’
