Following the 2023 Spring Budget, HMRC’s tax advantaged share schemes have had a quiet makeover, we explain some of the key changes.
Share schemes are used to retain and incentivise key members of staff and this is particularly important in a business’ early years where it may not have the monetary means to pay bonuses.
EMI
One of the most well-known and utilised HMRC approved schemes by small and medium sized businesses in the UK is the Enterprise Management Scheme (EMI) scheme. This scheme works by allowing employees the right to acquire shares at an agreed price in the company within 10 years and not be subject to income tax or national insurance on any growth in value (subject to other conditions).
To ease the administrative burden on employers, from 6 April 2023, the government has made changes to the running of EMI schemes by removing two requirements from the EMI share option documentation:
- The requirement for option agreements to state details of restrictions attaching to the shares under option
- The written confirmation of the working time requirement. However, employees will still need to meet the working time conditions to qualify for the income tax incentives under the scheme.
The aim is to assist businesses in standardising their documents issued to all employees, which is hoped could assist in reducing associated legal and professional fees.
Looking further into the future, the government also announced plans that, from 6 April 2024, it will no longer be necessary to notify HMRC of the grant of new EMI options within 92 days. It is proposed to align the notification obligation with the rest of the share scheme annual reporting so that there is only one admin deadline, being 6 July after the tax year.
Further details on the EMI schemes can be read here.
Some of the lesser well-known tax advantaged schemes are Company Share Option Plans (CSOPs), Save As You Earn (SAYE) schemes and Share Incentive Plans (SIPs). These schemes are essential for employers to consider if they do not qualify for the EMI scheme.
CSOPs
In addition to the EMI changes from 6 April 2023 mentioned above, the government has doubled the value of share options an employee can hold under a CSOP from a total value of £30,000 to £60,000.
The government have also removed the “worth having” condition on the CSOP options, meaning that the share options no longer need to be granted on the controlling share class of a company. These changes to CSOPs can potentially open the scheme to new businesses that previously had multiple classes of shares or they can now choose a share class or create a new one to be available under option on the CSOP.
SAYE and SIPs
The government released a call for evidence on 5 June 2023 to review the effectiveness, usage and simplicity of SIPs and SAYEs in its efforts to boost UK business growth. It also wants to receive opinions on how these two schemes can be improved to help employees on lower wages share in the success of their company’s business.
A SAYE scheme works by allowing a company’s eligible employees to acquire shares at a price that is no less than 20% of its current market values. Employees then enter in a contract for three or five years to save a pre-determined amount with a bank and at the end of the term, they have the options to acquire the shares or receive their savings. No income tax is payable on receiving the option, any interest received or increase in value from the grant and exercise dates.
SIPs are a share scheme for all a company’s employees to participate in. This allows employees to purchase shares in the employer that are held in trust for 5 years to obtain the income tax advantages.
According to HMRC’s evaluation report released on the same day, companies that were not registered for one of these schemes perceived the creation and administering of the schemes to be complicated and difficult, which as a result, created a barrier to offering the schemes to their employees.
HMRC also found as part of its evaluation report that 81% of companies indicated that there was an improvement in employment and business outcomes, with the main impact in being able to retain staff and attract new employees.
The government’s concern is that compared to EMI’s and CSOPs, SIPs and SAYE have not seen an increase in their usage over the past few years with 260 companies granting SAYE options in 2020/21 compared to 290 companies in 2015/16, and 480 companies granting SIP options in 2020/21 compared to 550 in 2015/16. Their hope is that the call for evidence can make businesses aware of these two schemes that can increase the number of participants and increase growth.
We regularly help clients set up employee share schemes. If you have any questions on the above, please contact Catherine Heyes.
