Employment-Related Shares & Securities Bulletin

Number 1 May 2012

The Employment-Related Shares & Securities Bulletin provides information and updates on developments relating to employment-related securities, including the tax-advantaged employee share schemes. This bulletin contains articles on:

1. Notification requirements of trustees of a SIP 2. SIP cessation of association of companies on a demerger 3. SIP meaning of "the same provision" in pre-emption conditions 4. Changes to share schemes approvals process 5. Budget 2012 and Consultations 6. Share Scheme Statistics User Survey

Enquiries about the content of this bulletin should be addressed to: Hasmukh Dodia Employee Shares & Securities Unit HMRC Room G53 100 Parliament Street London SW1A 2BQ Email: Shareschemes@hmrc.gsi.gov.uk

The Bulletin will be published as and when sufficient articles or updates are available, or when HMRC has an item that it wishes to bring to your attention quickly. We welcome any suggestions for future articles although we cannot guarantee publication. A reference to ITEPA is a reference to the Income Tax (Earnings & Pensions) Act 2003 as amended.

1. Notification requirements of trustees of a SIP The legislation for approved Share Incentive Plans (SIPs) requires that trustees have a duty to give notice of awards to employees participating in a SIP. We have been asked whether notification of awards to participants on an annual or six monthly basis satisfies the as soon as practicable wording in paragraph 75, Schedule 2 of ITEPA. How regularly notification is given will depend on the trustees individual circumstances. HMRC regards notification on a six monthly or annual basis as consistent with the legislative requirement. Any period longer than 12 months before notification is given is unlikely to be consistent with this requirement. Trust Deeds and Rules which qualify the statutory language to specify that notification will be given less frequently than monthly are consistent with the legislative requirement, but Trust Deeds and Rules which omit or substitute the statutory wording altogether are not. 2. SIP - cessation of association of companies on a demerger The SIP legislation provides at s498 of ITEPA that there will be no charge to tax on shares ceasing to be subject to a SIP in certain circumstances. We have been asked by some advisers to provide further clarity on this requirement where the relevant employment is employment by an associated company and that company loses the associated status due to a demerger. In these circumstances the demerged company will continue to be an associated company of the company which established the SIP immediately after the demerger because they will both have the same shareholders. It may take several months, or even years, for the shareholders to change sufficiently for the companies to no longer be associated companies. It can be costly for companies to monitor their common shareholdings and this also creates uncertainty about when the employees of the demerged company will cease to be in relevant employment. For the purposes of s498(2)(d) ITEPA only, HMRC will accept that if substantially all of the share capital of both companies involved is listed on a recognised stock exchange, then association ceases immediately upon completion of the demerger. A similar approach may also be acceptable where one or both of the companies is not listed after the demerger based on the specific facts of the case. 3. SIP meaning of "the same provision" in pre-emption conditions Paragraph 33 of Schedule 2 allows the articles of association of a company to require that shares acquired through a SIP must be offered for sale on the employee ceasing to be in relevant employment if certain conditions are met. For example, the same provisions must apply to all employees. Advisers have asked whether paragraph 33 should be interpreted to mean that these preemption conditions should apply to all shares in the company held by employees or only to shares of the same class as those acquired through the SIP.

HMRCs view is that para 33(3)(a) Schedule 2 of ITEPA requires that an employee pre-emption provision must apply to all shares in the company and not just shares of the same class as the eligible shares. 4. Changes to share schemes approvals process Last November we introduced some changes to our approvals process to help us respond to applications as quickly as possible and to reduce the overall time taken to review draft documents. As part of these changes, to help us to review draft documents as quickly as possible, we asked that proposed scheme rules be submitted with tracked changes against a similar scheme which we have recently approved together with a full explanation of each significant difference. Those people who have submitted documents with tracked changes have noticed a reduction in turn-around times and have welcomed the changes. You can find out more about our current approvals process here.

5. Budget 2012 and Consultations The Budget contained announcements in relation to tax-advantaged share schemes. The Government will consult on recommendations made by the Office of Tax Simplification in its review of tax-advantaged employee share schemes, and on extending access to EMI for academic employees of qualifying companies. These consultations will be launched shortly. The individual limits for EMI share options will be increased to 250,000, subject to State aid approval from the European Commission. HMRC will develop the guidance and support available to eligible start up companies who wish to use EMI.

6. Share Scheme Statistics User Survey HMRC are currently gathering information in relation to the use of Employee Share Schemes National Statistics Tables, and seeking views on potential improvements to these tables. If you would like to participate please complete the User Survey (Opens new window), which runs until the end of July 2012.