mmk comments on ots recommendations

8/2/2019 MMK Comments on OTS Recommendations

1/22

Comments on the Office of Tax Simplification review of tax-advantaged employee share plans

Prepared by Mike Landon

MM & K Limited

1 Bengal Court

Birchin Lane

London

EC3V 9DD

Tel: 020 7283 7200

Fax: 020 7283 4119

Web site:www.mm-k.com

Authorised and regulated by the Financial Services Authority

23rd March 2012
http://www.mm-k.com/http://www.mm-k.com/http://www.mm-k.com/http://www.mm-k.com/


2/22

MM&K Comments on OTS recommendations.docx 1

Office of Tax Simplifications review of tax-advantaged share plans

On 6thMarch 2012, the Office of Tax Simplification (OTS) published the final report of its review of the four tax-advantaged employee

share plans approved Share Incentive Plans (SIP), approved Savings-Related Share Option Plans (SAYE), approved Company Share

Option Plans (CSOP) and Enterprise Management Incentives (EMI). This report represents an excellent start towards simplifying thecomplex tax legislation governing these plans.

Detailed improvements

During the first six months of its share plans review, the OTS have carried out some extensive research into how tax-advantaged plans

are used, their effectiveness and the opinions of companies, their advisers and administrators about how they could be improved. This

has resulted in a large number of detailed recommendations for improvements, which include:

Good leavers: extending the range of circumstances in which employees who leave employment can exercise options or take shares

out of the plan with income tax relief.

Retirement: making the provisions for employees who retire consistent for the three approved plans.

Features not reasonably incidental: removing vague references to undesirable plan features which allow HM Revenue & Customs

(HMRC) to impose additional restrictions.

Takeovers: allowing income tax relief when options have to be exercised or shares removed from the plan on a cash takeover.

Tax charge on withdrawal from SIP:reducing the period before partnership, matching and free shares can be removed from a SIP

tax-free from five to three years

1,500 limit on dividend shares: removing the upper limit on the amount of dividend which can be reinvested in a SIP in any tax year.

EMI excluded activities: reducing the number of activities which exclude companies from offering EMI options.

However, there is much more which could be done to remove the unnecessary detail from the share plan legislation. The OTS did not

have time to carry out a more fundamental review of why there should be so many requirements for tax relief and of which ones are

strictly necessary. Unfortunately, by issuing a final report at this stage, there is a danger that this once in a generation opportunity to

modernise share plans will be lost.


3/22


Future of CSOP

A worrying development is that the OTS have called into question the future of the CSOP, which is by far the simplest and most flexible

tax-advantaged share plan and the only one available to many companies. Despite their extensive research, the OTS have found it

difficult to identify clearly the types of companies using the CSOP . The report recommends that further work should be carried out to

investigate whether the CSOP is still relevant for UK business. We therefore urge all companies with CSOPs to write to the OTS (atots-

[email protected]) to explain what they use them for and why they are a valuable tool for motivating and retaining your employees.

Assuming that further investigation demonstrates that CSOPs are worth retaining, the OTS recommend that they should be merged with

EMI to form a single discretionary share option plan. The current limit of 120,0001 to the value of shares under option will apply to

companies which currently qualify for EMI and the current 30,000 CSOP limit will apply to other companies.

Merging the two plans will result in some welcome improvements for CSOPs, for example:

it will be possible to grant options at a discount or even at nil cost (though any discount at grant will be taxed at exercise, as forEMI)

the three-year period before options can be exercised with income tax relief will be removed; and certain restrictions, imposed by HMRC, on the exercise of discretion by companies will be removed.

These useful improvements are, however, complicated by introducing them through a two-stage process and a continuing distinction

between EMI-compliant and other companies. It could be much simpler just to amend the CSOP legislation instead.

If the Government does decide to introduce a single tax-advantaged discretionary share plan, this should not be confined to share

options, but should also include awards of the full value of shares, such as conditional and deferred share awards.

Abolition of the approval process

The other bold recommendation is to replace the current process for obtaining HMRC approval for SIP, SAYE and CSOP with a self-

certification process, as already applies for EMI.

Companies will welcome any reduction in the time it takes to secure HMRC approval for plans, which has increased markedly over the last

year due to reductions in the number of their share scheme advisers. However, many are reassured by the fact that their share plans

have official approval. They will be alarmed by the OTSs related recommendation that if HMRC discover that plans do not in fact meet

1 In the Budget on 21st March 2012, it was announced that this EMI limit is to be increased to 250,000.
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


4/22


the requirements for approval the companies will be liable for the underpaid income tax and will not be able to recover it from their

employees.

A better solution would be to reduce the requirements for tax relief even more radically to a few essential provisions, so that the approval

process becomes straightforward.

It is highly likely that this recommendation will be accepted by the Government because it will help HMRC to cut costs. However, we

urge HMRC to retain its current share scheme advisers so that companies and their advisers will continue to be able to ask HM RCs views

about points of uncertainty in the legislation.

Further details

The Appendix contains a full summary of the OTS recommendations and our detailed comments.

Next steps

In the Budget on 21st March 2012, the Government stated that it will consider the recommendations of the OTS review and will consult

shortly on how to take a number of the proposals forward. We understand that HMRC will be issuing a consultation document in April2012 and there are unlikely to be any changes to the legislation before the Finance Bill 2013.


5/22


Appendix: Recommendations by the Office of Tax Simplification

Main recommendations

Issue being addressed OTS recommendation MM&Ks Comments

A new approval process

Companies must seek formal approval from

HMRC before they can implement SIP, SAYE

and CSOP.

HMRC review the plan documents, including

rules, enrolment forms, booklets and

communication materials.

This process can take a long time, partly

because the share plan legislation is far

more detailed and prescriptive thannecessary and partly because it contains

provisions which are open to interpretation

by HMRC, for example plans must not

contain features that are not reasonably

incidental to the provision of shares.

The delays have become worse over the last

year or so because HMRC have considerably

reduced the number of share scheme

advisers who handle applications for

approval.

HMRC should enter discussions with

interested stakeholders to design a self-

certification process to replace the current

approval process. This will be similar to the

self-certification which already exists for

EMI.

Model rules, with a list of required features

should be published by HMRC.

There should be power for HMRC to recovertax benefits for plans which are found not

to meet the requirements of the legislation.

Payment should be by the company, not

the employees unless they were knowingly

involved in the default.

Companies will welcome anything that

speeds up the approval process. However,

most welcome the certainty which HMRC

approval gives. If companies will potentially

be liable to pay large tax refunds to HMRC,

without the ability to reclaim this from

employees, they may be more reluctant to

introduce share plans.

HMRC already publish model rules, butthese usually need considerable

amendment, for example to take into

account recent employment and company

law and the guidelines issued by

institutional investors.

The real answer to the problem would be to

reduce radically the detailed requirements

of the legislation and, in particular, remove

provisions, such as the features not

reasonably incidental one, which cause

much of the delay in obtaining approval.


6/22



Further investigation into the relevance

of CSOPs

The use of CSOPs has declined significantly

over the last 10 years.

The OTS have found it difficult to identify

clearly the types of companies using CSOPs.

Further work should be carried out to

investigate whether the CSOP is stillrelevant for UK business. The aim would

be to get a better picture of which

companies currently use CSOPs and why.

This threat to the future existence of the

CSOP is very worrying. CSOPs are currentlythe most flexible type of tax-advantaged

share plan and have many fewer

requirements to meet than the other three.

The aim of tax simplification should be to

move towards the CSOP by removing the

detailed requirements from the other plans.

Many companies cannot currently operate

EMI because they do not qualify. Smaller

companies, in particular, find SIP and SAYE

too cumbersome and expensive to operate.

The main reasons why CSOPs are used lessthan 10 years ago are that:

The limits have remained frozen at30,000 since 1996.

There has been a trend away from shareoptions towards the award of the full

value of shares.

EMI is used by companies which qualifyfor it because of the more generous

limits.

Despite this, more CSOP options are

granted each year than EMI ones.

The best way to make CSOPs more popular

would be to extend the tax relief to

conditional and deferred share awards.


7/22



Merging CSOP and EMI

CSOPs are in some ways more restrictive

than EMI. For example, under a CSOP,

options cannot be granted at a discount andthey cannot normally be exercised with tax

relief within three years. In addition, HMRC

imposes additional restrictions on the

exercise of discretion by companies, for

example on the treatment of leavers and in

determining the extent to which

performance conditions have been met.

The current 30,000 limit for CSOP and

120,0002 limit for EMI are not annual

limits, but apply to all options which are still

subsisting. This can be difficult to

administer and encourages employees to

exercise early so that they can be granted

new options.

Assuming that CSOPs are still considered to

be relevant, CSOP and EMI should be

merged.

The more generous EMI individual limit

should only be available to companies

which currently meet the conditions for EMI

(eg gross assets of less than 30 million)

and the 30,000 limit would apply to other

companies.

These limits would only apply to options

granted over a rolling three-year period; so

that new options could be granted even if

the original ones had not been exercised

after three years.

Like EMI, CSOP options could be granted at

a discount (though income tax relief would

only be given for any increase in the share

value after the grant date, as for current

EMI options). Also like EMI, they could be

exercised with income tax relief less than

three years after the grant date.

However, the OTS have added an additional

complication of making these changes a

two-step process. Removal of the three-

year period before tax relief is available andthe simplification of the limits will be

deferred to the second step.

These recommendations provide very

welcome improvements for CSOPs:

The ability to grant options at adiscount, or even at nil-cost, means that

in effect full-value share awards can be

made tax-effectively.

The removal of the three-year periodbefore options can be exercised with

income tax relief means that companies

will be able to decide their own

provisions for allowing early exercise for

leavers and on the occurrence of other

corporate events, without having to

make separate provisions for approved

options.

The introduction of a three-year rollinglimit will allow CSOPs to be used more

frequently and reduce the number ofcompanies exceeding the limits by

mistake.

It would have been much simpler, though,

just to amend the CSOP legislation to make

these improvements.

If the Government does wish to introduce a

single approved discretionary share plan the

opportunity should be taken to allow for

grants other than options, such as

conditional and deferred share awards.

2 In the 21st March 2012 Budget, the Government announced that this EMI limit will be increased to 250,000.


8/22


Supplementary recommendations common to all schemes


Annual returns

There are currently separate annual returnforms which have to be sent to HMRC for

each of the four tax-advantaged share

plans, in addition to the very complicated

Form 42 for unapproved share plans.

Companies are also required to notify HMRC

within 92 days of the grant of an EMI

option, which is seen to be an unnecessary

duplication.

Create a single annual return form on whichoption grants and share awards under all

four tax-advantaged plans can be recorded

and notified to HMRC.

The need to notify HMRC of the grant of EMI

options within 92 days would be removed.

Any attempt to combine the reporting of allfour share plans on the same document is

likely to be a complication, not a

simplification. The Form 42 for unapproved

plans is very difficult to complete even for

experienced share plan specialists because

of the large number of potential chargeable

events. Keeping a separate form for each

plan would reduce the risk of mistakes

being made on their completion.

Online filing

All annual returns are paper-based. The

ability to file online would reduce

paperwork, result in swifter completion of

forms and minimise risks of errors.

Introduce online filing for annual returns

and for provision of any plan documentation

required by HMRC.

In the long term, real time recording should

replace the annual return.

HMRC has allowed share plan documents to

be sent to them by email for quite some

time.

We understand that online filing of annual

returns has been held up due to technical

problems at HMRC.

Real time recording may be of benefit to

HMRC in due course, but could be an

increased administrative burden for

companies.


9/22



Prescriptive rules regarding operation

of schemes

The legislation for tax-advantaged share

plans contains a large number of detailedrequirements to qualify. For SIP, in

particular, they are far more prescriptive

than necessary about how the plan must be

operated. This limits companies flexibility

on how to operate plans and means that

plans operated by international companies

have to be significantly tailored to meet UK

requirements. It also makes the process forapproval of plans by HMRC more

complicated and time consuming.

Allow companies to provide communications

to employees online.

Remove the requirement for companies to

submit employee communication material

as part of the approval process.

Dispense with the requirement for a full

paper copy of the companys articles of

association to be attached to EMI option

agreements.

Permit companies to make their own

decisions on administrative aspects of plans.

These proposals are a good start (though

HMRC does already allow companies toprovide communications online).

But there is a quite considerable amount

more that could be done to remove the

detailed administration requirements from

the legislation.

Retirement age

The minimum specified retirement age is 50

for SIP, 55 for CSOP and 60 for SAYE.

For SAYE, retirement can also be at any

other age at which the participants are

bound to retire in accordance with their

employment contracts. However, the

removal of the default retirement age for

most employees has made this provision

redundant.

SAYE has the further disadvantage that the

participant must retire exactly on the date

when they reach the specified age;

otherwise the option lapses. SIP and CSOP

allow for retirement on or after the specified

age.

Create one definition of retirement for the

three approved plans.

This common rule should allow companies

to have their own definition of retirement.

(If CSOPs are merged with EMI, tax relief

will be available even if the options are

exercised within three years of grant, so

there will be no need for a retirement

provision in the tax legislation.)

The first two recommendations appear to

contradict each other.

There is a much simpler solution, which is to

make the retirement provision for SAYE

exactly the same as it is for SIP. SAYE

options should be exercisable on retirement

on or after a specified age, which cannot be

less than 50.

Over the longer term, the concept of

retirement will become less definite and so

an alternative good leaver provision may

need to be developed (see the next

recommendation).


10/22



Good leavers

The approved plans allow employees to be

able to exercise options under SAYE and

CSOP or withdraw their shares from a SIPwithout an income tax charge if they leave

employment early in certain good leaver

circumstances, which usually involve

involuntary cessation. However, these

provisions are more generous for SIPs

which, for example, include TUPE transfers

as good leaver circumstances.

The legislation should be changed so that all

leavers will be treated for the purpose of

income tax relief as good unless theyleave through voluntary resignation or

dismissal for cause.

For CSOPs, companies would still be able to

decide the circumstances in which options

could or could not be exercised on leaving

employment.

This recommendation would help to reduce

cases on when employees are unfairly

treated on leaving employment because thereason for leaving does not come exactly

within the statutory provisions.

Over the longer term the distinction

between retirement and voluntary

resignation may become less clear, and so

even this more relaxed provision may need

to be rethought.

Cash takeovers

Where there is a cash takeover, CSOP and

SAYE options may usually be exercised, but

no income tax relief is available if exercise is

within three years of grant. Participants in

SIPs may be obliged to sell their shares,

which will result in an income tax charge for

shares acquired in the previous five years.

There is also an employers NICs liability

(except for SAYE).

Allow income tax relief in these

circumstances.

This would be a welcome improvement, as

employees are often unfairly penalised when

there is a takeover, which is an event out of

their control.


11/22


12/22



Restrictions on shares

The shares acquired through the three

approved plans cannot be subject to

restrictions (with very limited exceptions).SIP allows more restrictions than SAYE and

CSOP. For private companies which wish to

require employees to sell shares on leaving

employment, some very specific

requirements need to be put into the

articles of association, which can be costly

and not in the companys commercial

interests.

The prohibition on offering shares with

restrictions under SIP, SAYE and CSOP

should be removed. Employees should benotified of any restrictions on the shares.

For the purpose of the individual limits to

the size of share options, the shares should

be valued ignoring the restrictions.

This will help to give some useful additional

flexibility, which should encourage some

companies which cannot currently offerapproved share plans to adopt them.

We recommend, however, that some

safeguards should remain, so that there is

some protection for employees against

being offered worthless shares.

Requirements as to other

shareholdings

Again to protect employees, if a companyhas more than one class of ordinary shares,

a majority of the class of shares offered

under SAYE or CSOP must be held by

persons other than employees or employee

trusts or (for private company shares)

associated companies. Alternatively, the

company must be employee-controlled.

This can cause particular problems for

private companies with several classes of

shares with different rights.

Permit companies with more than one classof shares to operate SAYE and CSOP.

Again, this will give additional flexibility, butsafeguards to protect employees should

remain.


13/22



Group schemes and associated

companies

Employees can only participate in an

approved plan if their employing company isthe company which established the plan or

one of its subsidiaries. Where the parent

company (whose shares are used) is

foreign, it is often more convenient

administratively for a UK subsidiary to

establish the plan. However, if other UK

companies are not its subsidiaries, they

cannot participate and may need to set upseparate plans.

Permit associated companies of the

company which established the plan toparticipate in an approved plan if they are

subsidiaries of the company whose shares

are being acquired.

This will be a useful change for subsidiaries

of foreign companies. They may be able toinclude all UK subsidiaries in the same

approved plan, which will reduce

administration costs and complications if

employees are transferred between group

companies.


14/22


Recommendations specific to SIP


Redundant legislation

There is a provision which prevents shares

transferred from qualifying employee share

ownership trusts (QUESTs) from being

awarded as partnership shares. However,

the favourable tax treatment of QUESTs was

removed from 2003 and so there is no

longer any need for this provision.

Delete the relevant paragraph. This will remove the requirement for an

unnecessary clause in SIP Trust Deeds.

Partnership Shares accumulation

periods

Instead of purchasing shares monthly, SIPs

can provide that they will only be purchasedat the end of an accumulation period of up

to 12 months. The price paid by employees

is the lower of the share prices at the start

and end of the period. This is intended to

be similar to US employee stock purchase

plans.

However, some companies are reluctant tointroduce accumulation periods because

they will effectively have to fund the

equivalent of any increase in the share price

over the accumulation period, which is an

unpredictable amount.

Allow companies the choice of making the

amount paid by employees any of:

the price at the start of the accumulationperiod

the price at the end, or the lower of the two prices.

This will give companies useful additional

flexibility to design SIPs to meet theirparticular requirements.

There should be savings in administrative

costs if share purchases are once a year

instead of monthly.


15/22



Operation of PAYE

When employees leave employment in

certain circumstances, a PAYE liability is

incurred based on the share value at thedate of leaving. The Company must

account for this by the 14th day of the next

tax month. It is often impracticable for the

SIP trustees to deduct the money from the

shares they hold from departing employees

within this timescale, which since April 2010

could result in PAYE penalty charges for the

employing company.

Penalties should not be chargeable for the

late payment of PAYE if it is paid within 90

days of the leaving date.

A good practical solution to this problem.

It could also be applied to other tax-advantaged and unapproved share plans.

Tax-free holding period

Employees are subject to income tax on

their SIP shares either if they choose towithdraw the shares within five years of

their acquisition date or if they leave

employment in certain bad leaver

circumstances during this period.

Five years is considered to be an

unreasonably long period given current

employment patterns. There is also

potential confusion with the three-year

holding period during which free,

matching and dividend shares cannot

normally be removed from the plan and the

forfeiture period of up to three years forfree and matching shares.

Reduce the period before shares can be

withdrawn tax-free to three years.

This would be a useful simplification to the

SIP legislation and is likely to encouragemore employees to participate.

It would also make SIP consistent with SAYE

and CSOP for which options can be

exercised without an income tax charge

after three years.

The amount taxable for withdrawals in the

first three years should be the initial value

of the shares on the original acquisition date

ie not the market value at withdrawal

unless the share price has fallen. (See the

next recommendation.)


16/22



Uncapped PAYE and NICs liability on

cash takeovers

If employees accept a cash takeover bid for

the company (or are obliged to sell theirshares) within three years of acquiring

them, they are subject to income tax and

NICs on the full market value of the shares.

The tax charged may be more than the tax

saved at the original acquisition date.

In addition, there is an employers NICs

liability on this full market value. As this

potential liability cannot be predicted at the

award date, it can discourage companies

from introducing SIPs.

Assuming the earlier recommendation that

there should be no tax charge at all in thesecircumstances is not adopted, the taxable

amount should be based on the value of the

shares on the original acquisition date (or at

the time of the takeover if this is lower).

This would be fairer treatment for

employees and companies in thesecircumstances.

However, the problem is even broader, in

that the higher taxable amount also applies

when an employee leaves in bad leaver

circumstances within three years of

acquiring the shares. For greater simplicity,

the lower tax should apply whenever there

is a tax charge during the first three years.


17/22



Dividend reinvestment

Dividends received on shares held in a SIP

may be reinvested to acquire dividend

shares, which can be taken out of the planafter three years with no income tax charge.

However, there is a limit of 1,500 to the

value of dividends which can be reinvested

in any tax year. Given that many SIPs have

now been operating for more than 10 years,

this 1,500 limit is now frequently

exceeded.

Any dividends which cannot be used to buy

a whole number of shares must be carried

forward (except in the case of some plans

using foreign shares which allow fractions of

shares to be acquired). If the dividends are

not reinvested within three years, they must

be returned to the employees.

Remove the 1,500 cap so that all dividends

can be reinvested.

Remove the three-year limit on carry

forward.

These proposals would help remove some

unnecessary administrative complications in

operating SIPs. The 1,500 figure hasclearly become out of date.

There could be further simplification if SIPs

were able to hold fractions of shares on

behalf of employees, as there would then be

no need for carry forward of uninvested

dividends (or of money contributed by

employees to buy partnership shares). We

do not understand why the OTS have

dismissed this possibility.

Recommendations specific to SAYE


Different savings periods

SAYE plans can offer employees the choice

of three, five and seven year options.

Seven year options are now offered by a

small proportion of plans and are rarelytaken up by employees.

Remove the choice of seven year options. It is unlikely that many people will mourn

the disappearance of seven year options.

However, it is arguable that the objective of

simplification should be to increaseflexibility for companies, not reduce it. Why

should companies not be able to offer any

option period that they choose (as they can

for CSOP and EMI)?


18/22



Prescriptive rules on non PAYE

contributions

Employee savings into an SAYE plan must

normally be by deduction from salary.HMRC permit employees on maternity leave

to make payments directly to the savings

account, but this is not available, for

example, for employees on secondment or

sabbatical leave, which may mean that their

options will lapse.

Allow companies to permit savings to be

made otherwise than from salary in abroader range of circumstances.

This would remove an unnecessary

restriction currently being imposed byHMRC.

Approved savings carrier

Very few smaller companies offer SAYE

options partly because the current savings

carriers are not able to offer their services

at low enough cost.

This issue should be taken into account by

BIS in their longer-term review into the

wider application of employee ownership

among smaller private companies.

Companies could reproduce many of the

features of an SAYE plan (though not the

tax-free 20% discount) by using CSOP or

EMI options instead. This is another good

reason for keeping the CSOP legislation.


19/22


Recommendations specific to EMI


Disqualifying events

Employees must exercise their EMI options

within 40 days of the occurrence of a

disqualifying event, which includes ceasing

employment and certain changes to the

companys ownership, trading activities or

share capital. It is sometimes impractical to

meet this deadline. In any case, it is much

less than the six months allowed for good

leavers to exercise SAYE and CSOP options

with tax relief.

Extend the 40-day period to six months. This is a good practical solution to the

problem.

Perhaps the list of disqualifying events

could be reduced as well. For example, a

holder of a CSOP option could exercise the

option with income tax relief at any time

between the third and tenth anniversaries of

grant, even if he had left employment many

years earlier (assuming, of course, that the

plan rules permitted this).

Working time requirementTo be eligible to be granted an EMI option,

employees must be contracted to work for

the business at least 25 hours per week, or

75% of their total working time. Ceasing to

meet this condition is then a disqualifying

event. This discriminates againstemployees with flexible hours or who have

more than one employment. The equivalent

CSOP provision only applies to directors and

then only at the date of grant.

Amend the working time requirement so

that it only applies to directors.

This is a helpful amendment which should

mean that only non-executive directors

would be excluded from receiving EMI

options.

For consistency with CSOP, the EMI rules

should also be changed so that the working

time requirement only applies at the grant

date and ceasing to meet it is not a

disqualifying event.


20/22



Qualifying trades and excluded

activities

Companies cannot grant EMI options if they

carry out certain excluded activities,including certain financial services, property

development, farming and shipbuilding.

The precise rules are complex and

confusing.

Reduce the list of excluded activities. This will be welcomed by many of the small

companies which would otherwise qualify togrant EMI options; though some of the

exclusions may be required by EU state aid

regulations.


21/22


Issues beyond simplification


EMI and entrepreneurs relief

Before capital gains tax (CGT) taper relief

was abolished in 2008, EMI option holders

were able to benefit from an effective CGT

rate of 10% (or even less for basic rate

taxpayers). They were deemed to have

acquired their shares at the date of grant of

the option and could claim full taper relief

for a disposal of shares not less than two

years later.

The entrepreneurs relief which was

introduced instead provides similar tax

benefits but only applies to individuals who

have held a minimum of 5% of the ordinary

share capital and voting rights for at least

one year before they dispose of the shares.

The position of EMI shares in relation to the

CGT tax rate needs to be considered in the

light of the eligibility criteria for

entrepreneurs relief.

The Government have already announced

acceptance of this proposal in the 21st

March 2012 Budget. However, it seems

that the shares will need to be held for at

least 12 months after the EMI option has

been exercised, which will mean that

options whose exercise is linked to exit

events may not qualify.

In addition, the position of other employee

shareholders with holdings of less than 5%

should be considered, as they also used to

qualify for the business assets rate of taper

relief.

Scheme limits

The limits to participation in SAYE have not

changed since 1991, for CSOP since 1996

and for SIP since they were introduced in

2000. This has reduced to the

attractiveness of these plans and, in

particular, has probably been one reason forthe reduction in the use of CSOP.

The limits should be reviewed on a

reasonably regular basis.

This could give a good boost to employee

share ownership.

Simplification of the CSOP and EMI limits, as

discussed above, would also be welcome

and reduce the risk of the limits being

exceeded by mistake.


22/22



Eligible organisations

The requirements for tax-advantaged share

plans exclude certain types of company

from offering them for example, venturecapital owned companies and mutual

societies.

The FSA Remuneration Code requires the

remuneration packages for senior

employees of financial institutions to include

bonuses deferred in part into shares or

similar capital instruments.

This issue is noted for future consideration. The rules restricting shares in subsidiary

companies being used for share plans could

be relaxed provided there were safeguardsincluded to prevent employees from

benefiting from artificial manipulations of

share values.

Extending tax-advantaged plans to mutuals

would require innovative new solutions and

a major change of approach by the

Government. Some companies have dealt

with this issue by entering into contracts for

differences with employees.

mmk comments on ots recommendations

Documents