UK: Shares received by UK employees | Tax Connect Flash
This alert is relevant to all companies who provide shares to UK employees, whether that company is located in or outside the UK.
On 6 April 2014, the UK switched from a paper system to a compulsory online notification regime for all employee share awards. As part of that change, specific share plans which had previously been “approved” by the UK tax authority (HMRC) and so have special tax benefits must now be re-notified to HMRC to retain their tax favourable treatment.
While companies have until 6 July 2015 to comply, companies should start preparing for this and the relevant information needed now. In some cases, plans have been set up by non-UK companies, often for employees of their UK subsidiaries. Complying with the new regime for these companies may present special difficulties and take longer.
The UK has three tax favoured types of share plan for large companies. Up until 6 April 2014, favourable tax treatment (both in terms of tax and social security contributions) for employee share awards under these plans depended on HMRC “approving” the terms of a share plan as complying with relevant statutory conditions before any awards were made.
From 6 April 2014 (6 April is, for historical reasons, the start of the UK tax year for individuals), these approvals are now no longer effective. Companies now need to make sure that they re-register the plan using HMRC’s new online service. They need to notify each formerly “approved” plan separately and certify themselves that it continues to meet the relevant conditions. They must do this by no later than 6 July 2015 . So long as companies register the previously “approved” plan by then, awards made before that date will receive tax benefits and penalties will be avoided. But if companies do not do this, share plan benefits for participants may be prejudiced and companies may incur potentially large penalties and costs.
Annual returns of share plan activity also need to be made electronically starting from next year. The information to be submitted to HMRC is still subject to consultation, but early signs are that HMRC will need more information than it has sought in the past. Some companies should therefore start changing the information they need to capture right away.
Other plans or arrangements
Companies who have made awards to UK employees under non-approved plans or individual arrangements also need to register to use the online service and electronically notify HMRC of share scheme activity in an annual return starting from next year. Again, HMRC is still consulting on the information being sought but early signs are also that more information will be needed than in the past.
We would be happy to speak to clients about electronic registration and the relevant certification/annual returns now needed whether for “approved” plans or any UK employee share award. It is not just UK companies that are caught by these new rules – non-UK companies offering shares to UK employees in their groups also need to react to these changes.