Following on from the recommendations of the Office of Tax Simplification, a new self-certification system replaces the requirement for approval from HM Revenue & Customs (HMRC) in relation to Share Incentive Plans (SIPs), Company Share Option Plans (CSOPs) and Save As You Earn (SAYE) schemes.
The new system takes effect from the start of the 2014/15 tax year, although the relevant legislation in ITEPA 2003 is not yet in place, as this is included in the Finance Bill 2014 Schedule 6 (http://www.publications.parliament.uk/pa/bills/cbill/2013-2014/0190/cbill_2013-20140190_en_25.htm#sch6).
Importantly all existing approved schemes will need to register and self-certify in order to continue as tax-advantaged schemes.
Instead of the various types of share schemes being referred to as “approved”, a scheme meeting the requirements of the legislation will carry the name of the relevant Schedule of ITEPA 2003, so an approved SIP becomes a Schedule 2 SIP, an approved SAYE option scheme becomes a Schedule 3 SAYE option scheme and an approved CSOP scheme becomes a Schedule 4 CSOP scheme.
In respect of each type of share scheme, new requirements will be written into the legislation to say that the scheme must not provide for benefits to employees otherwise than in accordance with the legislative code for that scheme – in particular it must not offer cash to employees as an alternative to share options or shares which might otherwise be made available under the scheme.
Also from 6 April 2014, various detailed changes are being made to each of the schemes that were previously subject to approval. These include—
- for CSOPs and SAYE option schemes, there are new conditions placed on the variations that may be made to the acquisition price of shares, the number of shares that may be acquired and the description of shares that may be acquired. In short, both the market value of the shares that may be acquired and the total price at which they may be acquired must be substantially the same before and after the variation. This replaces the previous requirement for any such variations to be submitted to HMRC for approval before being implemented.
- for SIPs, there are increases in the annual limit of free shares that may be issued under the scheme to £3,600 from the previous £3,000 and the annual limit on partnership shares to £1,800 from the previous £1,500.
In a change made to SAYE options schemes earlier this year (in SI 2014/402) the monthly limit for savings is £500 for 2014/15 onwards (previously £250).
The new self-certification arrangements
The new system for self-certification is outlined in new paragraphs to be inserted into the relevant Schedule of ITEPA 2003 (Sch 2 for SIPs, Sch 3 for SAYE option schemes and Sch 4 for CSOPs).
On first setting up a scheme, the scheme organiser (or the company in the case of a SIP) will have to give a notice to HMRC, containing information that HMRC will specify and a declaration that the plan meets all the requirements set out in the relevant Schedule of ITEPA 2003 and that those requirements have been met in respect of share/share options previously given out under the scheme and continue to be met.
The deadline for that first notice, which must be made electronically, is 6 July in the tax year following that in which shares/share options are first given out under the scheme. If that initial deadline is missed, the scheme can only be a tax-advantaged scheme with effect from the start of a tax year in which the notice is given.
Companies with existing approved schemes must ensure that these are notified and certified by 6 April 2015 if they want the scheme to remain tax-advantaged for 2014/15 onwards.
The scheme organiser (or company in the case of a SIP) will also have to submit electronic annual returns in respect of the scheme, including details of any alterations made to any key feature of the scheme. Again, the annual return will have to include a declaration that the plan still meets all the requirements of the relevant Schedule of ITEPA 2003.
The deadline for submission of the annual return will be the 6 July following the end of the tax year to which it relates. There are penalties that will apply if the annual return is not submitted by the deadline. The penalty for an initial failure will be £100, with a further £300 penalty chargeable if the return is not submitted by 5 October and another £300 chargeable if the return is not submitted by 5 January. If the delay in submitting the return continues after 6 April, it will be open to HMRC to determine yet more penalties, computed on a daily basis (£10 per day) from a date fixed by HMRC (which may not be earlier than the 6 April following the original due date for the return). There will be a right of appeal to the tribunal against these penalties as well as the usual get-out from penalties in the case of a reasonable excuse.
Although the default mechanism for submitting the initial notice and the annual returns will be by electronic means in a format to be specified by HMRC (see below regarding the new Employment Related securities service), HMRC may exceptionally allow the notice or return to be submitted in a different way. If the scheme organiser or company does not use the authorised electronic method, or other method agreed with HMRC, a penalty of up to £5,000 may be charged. HMRC may also charge a penalty of up to £5,000 if there is a material inaccuracy in a return, whether that inaccuracy is careless or deliberate or if it was not corrected as soon as it came to light.
HMRC’s enquiry powers
As HMRC is no longer going to approve these schemes, it will have a new right to enquire into them. HMRC will have the right to enquire into a scheme either following the submission of an initial notice or an annual return. The enquiry window for any such enquiry will be, in the case on an initial notice, one year from the last day for filing the initial notice, unless that notice is filed late, in which case, the enquiry window will run up to 6 July in the second tax year in which the notice is actually submitted. For enquiries following submission of an annual return, the enquiry window runs up to 6 July in the second tax year following that in which the annual return in made. HMRC will also be able to enquire into a scheme at any time if it has reasonable grounds for believing that the requirements of the relevant schedule of ITEPA 2003 are not or have not been met (even if the scheme has ended). On conclusion of its enquiry, HMRC will have to issue a closure notice stating one of the following three conclusions:
o the scheme does not or has not met all the requirements of the relevant schedule of ITEPA 2003 to such a degree that the scheme is no longer to be considered a tax-advantaged scheme from a date as specified in the closure notice (or the date of the notice if no date is specified). This may also result in the scheme organiser (or the company in the case of a SIP) being liable to a penalty.
o the scheme does not or has not met all the requirements of the relevant schedule of ITEPA 2003, but the failures are not, in HMRC’s view, sufficient to disqualify it from being tax-advantaged scheme. In such a case, the scheme organiser (or company in the case of a SIP) is liable to a penalty of up to £5,000 determined by HMRC and has 90 days to take the necessary steps to ensure that the scheme does fully meet all those requirements. If such steps are not taken within the 90 days, HMRC may serve a default notice, as a result of which the scheme is no longer to be considered a tax-advantaged scheme (this may also result in a further penalty). In the case of a CSOP or a SAYE scheme this will not affect the application of the exemption on exercise of options granted before the date of the default notice but not exercised until afterwards.
o there are no shortcomings in the operation of the scheme sufficient to make either of the above apply.
As with other HMRC enquiries, once HMRC has issued an enquiry notice, there is a right to apply to the tribunal for a direction to be given to HMRC to issue a closure notice. There will also be a right of appeal against penalties imposed by HMRC.
Using HMRC’s electronic Employment Related Securities service
Registration of a SIP, CSOP or SAYE option scheme, whether a new scheme or an existing one, (unless, exceptionally, HMRC agree otherwise) has to be made electronically via HMRC’s Employment Related Securities services, which sits within the PAYE part of HMRC’s suite of online services.
An employer has to register with the online services in order to be able to use them. The online system uses individual IDs and passwords, with the person who first registers for online services on behalf of an organisation being deemed to be the administrator. The administrator can then set up others within the organisation as administrators or assistants, or can authorise a third party agent to use the system on behalf of the company.
Employers are generally registered for HMRC’s online services for PAYE purposes and the employment-related securities service works via the company’s registration for online services under the company’s PAYE reference. Any person set up with access for the purposes of a company’s share scheme(s) will also be able to access other information relating to the company’s PAYE scheme. If the employer wants those individuals using the Employment-related securities service not to have access to wider PAYE information, it should set up a new registration under a separate PAYE reference.
HMRC’s Employment-Related Securities Bulletin 15 includes step-by-step instructions on how to access the new system, under which users will be able to:
o register a SIP, CSOP or SAYE option scheme.
o view details of existing schemes already entered on the system.
o make annual returns in respect of SIP, CSOP or SAYE option schemes (this part of the service is expected to go live In October 2014).
The same system may also be used in relation to EMI notifications. If the company has different third party agents operating different share schemes on behalf of the company, it is possible to set up a registration in respect of each under separate PAYE references.
When to register
Companies may register using the new employment-related securities service at any time, but must do so before 6 July 2015 in order to ensure that tax advantages continue in relation to the scheme in question.
Presumably to reduce the chances of the system becoming overloaded, HMRC suggest (in Employment –Related Securities Bulletin 14) companies register in line with the following timetable:
|Company name beginning:||Register during period:|
|A to E||April to May 2014|
|F to L||June to July 2014|
|M to S||August to September 2014|
|T to Z||September to October 2014|
Although it is the scheme administrator who has responsibility for operating the self-certification system in relation to CSOP and SAYE option schemes, it is the company that has to arrange for the scheme administrator to have access to the online system under one of its PAYE reference numbers.
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