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The application of unapproved employee share schemes needs significant reform, the Office of Tax Simplification (OTS) said today.
Employees should be allowed to choose when to face a tax charge by having the option of paying either on acquisition or when the security can be offloaded for cash – rather than facing the common situation of being taxed on the value of the shares before they can be sold – the OTS proposes in a new report.
This idea of a “marketable security” is among key recommendations that include the introduction of a simple vehicle akin to an employee benefit trust, which would enable companies to manage their employee share arrangements and create a market for the shares.
The OTS has also called for an increase in the availability of pre-transaction valuations to help remove confusion and uncertainty about the worth of shares. Better provision of valuation information would also be helpful, claims the report, as would more flexibility for companies on non-recognised stock exchanges.
The measures put forward in the OTS document – the result of a year’s discussions with business, employees and tax authorities – are intended make the tax rules of unapproved share schemes simpler for employees, employers and HMRC alike.
Implementation of a full package would provide greater benefit than if the suggestions were launched individually, said the OTS.
The body’s tax director, John Whiting, said research employers see “real benefits of offering share-based rewards” but have they difficulties with managing schemes within the tax rules.
Whiting went on to point out that his organisation had been “very mindful” of avoidance risks when constructing its list of reforms.
“We think we have a balanced package of recommendations that will simplify processes, increase fairness and encourage employers to offer these ownership options, without creating new avoidance opportunities.”
