Simpler options

KEY POINTS

• Impact of entrepreneurs’ relief.
• Approval process.
• Combining schemes.
• Trading activities requirement.
• Simplification just a pipe-dream?

The independent Office of Tax Simplification (OTS) was established in July 2010 to advise the chancellor on options to improve and simplify the UK’s tax system. One of the areas under review are HMRC approved employee share schemes.

The main reason for the complexity of the tax legislation on employee share schemes is that tax efficient share schemes deliver gains which are subject to capital gains tax (CGT) rather than income tax.

Since the rates of CGT are much lower than the top rates of income tax considerable ingenuity has been applied by tax advisers in designing creative unapproved ‘employee share schemes’ which have the effect of turning what would have...