Spotlight on bonus schemes

Some employee bonus schemes based on contracts for difference have been deemed ineffective by HMRC.

One of these is known as the growth securities ownership plan. Its premise is that any payment made to the employee by the employer on the maturity of the contract is taxable as a capital gain rather than as employment income.

HMRC has reviewed these schemes and concluded that they do not work. Such payments should be taxed as employment income subject to PAYE and National Insurance
it said.

Under the arrangements each employee acquires a contract for difference which entitles them to receive a cash payment at a pre-determined date provided a pre-determined hurdle is achieved (the ‘upside’).

Commonly the employee pays a premium for entering into the arrangement and is exposed to a financial loss (the ‘downside’) if results fall below a specified threshold (known as the ‘floor’).

In reality...