Budget 2013 outcomes and real time information
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Budget 2013 Outcomes and Real Time Information. GEO – UK Chapter Meeting 9 April 2013 Judith Greaves and Matthew Findley. 44612117. Introduction. This is a time of almost unprecedented change for employee share plans

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Budget 2013 Outcomes and Real Time Information

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Budget 2013 outcomes and real time information

Budget 2013 Outcomesand Real Time Information

GEO – UK Chapter Meeting

9 April 2013

Judith Greaves and Matthew Findley




  • This is a time of almost unprecedented change for employee share plans

  • Changes brought in as part of Budget 2013 and introduction of Real Time Information (or “RTI”) are very much part of that

  • Budget 2013

    • Follow on from Office of Tax Simplification (“OTS”) review of HMRC – approved plans

    • Highlight key changes

    • Focus on those of more practical importance

    • Also look at some of the other things may have heard of and/or be asked about

    • The future?

  • RTI

    • What is it?

    • Issues for share plans

    • What if it all goes wrong?

Budget 2013 outcomes and real time information


Budget 2013 summary of changes 1

Budget 2013 – Summary of Changes (1)

  • Headline points

    • SIP

      • tax-free dividend reinvestment cap removed

      • more choice for employers using accumulation periods

    • SAYE

      • more flexibility during savings periods – e.g. deductions other than from salary

      • abolition of 7 year contracts

    • SIP, SAYE and CSOP

      • retirement rules harmonised

      • “good leaver” rules extended and harmonised

      • tax relief on cash takeovers

Budget 2013 summary of changes 2

Budget 2013 – Summary of Changes (2)

  • Ancillary points

    • ability to use “restricted” shares for SIP, SAYE and CSOP

    • material interest rules relaxed / abolished

  • Other things you may have heard of

    • statutory residence test

    • extension of “Entrepreneurs’ Relief” to EMI

    • “Employee Shareholder” status

    • the “General Anti-Abuse Rule” (or “GAAR”)

Sip dividend re investment

SIP - Dividend Re-investment

  • Old position:

    • £1,500 limit

    • Carried forward amounts must be reinvested within 3 years

  • New position:

    • Unrestricted dividend reinvestment, unless company elects to impose a cap

  • Took effect on 6 April 2013

  • Implications:

    • Good news for long term SIP participants in high dividend companies

    • No longer need systems to pay “excess” dividends in cash

Sip accumulation periods

SIP - Accumulation Periods

  • Current position:

    • Participant acquires partnership shares at lower of price at the beginning OR price at the end

    • Employer bears cost of share price movements

  • What is changing? Employer will be asked to choose:

    • As now (Choice 1)

    • Fix at beginning (Choice 2)

    • Fix at end (Choice 3)

  • When? Royal Assent

  • Implications – ability to budget

Sip accumulation period examples

SIP-Accumulation Period Examples

  • Assume SIP partnership share monies £100k per month, 3 month accumulation period, share price at the outset is £1

  • Company may fund SIP to buy 300,000 shares initially

  • Company could delay funding until after the end of the accumulation period, when price may be (a) 50p or (b) £2

  • What happens at the moment? (Choice 1)

  • Outcome with Choice 2

  • Outcome with Choice 3

Saye savings contracts

SAYE-Savings Contracts

  • Current position

    • 3, 5 or 7 years

    • 5 year savings period; leave for 2 years to earn (historically) higher tax free bonus

    • Bonus currently zero.....

    • Limited flexibility/lack of clarity around contributions other than from salary

  • What is changing?

    • 7 year option to be withdrawn

    • Prospectus to be revised

    • Sabbaticals and secondments - guidance already changed

  • When? Proposed amendments to the SAYE prospectus have been issued for consultation

  • Implications:

    • Revise what is offered

    • Update communications accordingly

    • Check procedures regarding contributions other than from salary

Sip saye csop retirement 1

SIP/SAYE/CSOP - Retirement (1)

  • Current position for tax favoured treatment:

    • SIP: withdraw shares on retirement on or after reaching specified age, not less than 50 (compulsory requirement)

    • SAYE:exercise within 6 months of leaving through retirement at specified age (60 to 75) or when ‘bound to retire’ under contract; early exercise opportunity at specified age for continuing employees (compulsory requirements)

    • CSOP: exercise within 6 months of retiring at specified age, not less than 55 (company choice)

Sip saye csop retirement 2

SIP/SAYE/CSOP - Retirement (2)

  • What is changing?

    • SIP: no income tax liability on shares ceasing to be subject to the plan by reason of the participant’s retirement

    • SAYE/CSOP: exercise within 6 months of ceasing employment by reason of retirement

    • SAYE: removal of right of exercise on reaching specified age without retiring (retained in respect of existing options)

    • In future, age not so directly relevant

    • Automatically read into rules

Sip saye csop retirement 3

SIP/SAYE/CSOP - Retirement (3)

  • When? Royal Assent

  • Implications:

    • HMRC have accepted OTS recommendation

    • Explanatory notes say companies will be able to use their own definition of retirement

    • Unclear whether this could/should be included in the plan rules

    • HMRC will publish guidance setting out:

      • circumstances in which retirement can be presumed

      • “normal and natural meaning”

      • not possible to retire for tax advantaged plan but not for “other purposes”

Sip saye csop good leaver rules general 1

SIP/SAYE/CSOP: Good Leaver Rules - General (1)

  • Current position:

    • CSOP/SAYE:no “tax free” early exercise on TUPE transfer (unless redundancy) or sale of employer companyout of group

    • SIP: “tax free” withdrawal following TUPE transfer/sale ofemployer company out of group

  • What is changing? Alignment of good leaver circumstances qualifying for tax relief with current position for SIP:

    • injury, disability, redundancy, retirement, TUPE transfer and sale of employer company out of group

Sip saye csop good leaver rules general 2

SIP/SAYE/CSOP: Good Leaver Rules - General (2)

  • SAYE - automatically read rules

  • CSOP - no amendment to plan rules

  • When? Royal Assent

  • Implications - review and align rules and other documentation, due diligence and project planning on transactions may become simpler

Sip saye csop cash takeovers

SIP/SAYE/CSOP - Cash Takeovers

  • Current position - no protection

  • What is changing?

    • Protection for early exercise/withdrawal for CSOP/SAYE/SIP in the case of certain cash takeovers

    • No ‘arrangements’

    • Care where offer is not straight cash

    • No rollover offer – SAYE and CSOP

  • When? Royal Assent

  • Implications: share plans due diligence even earlier, especially for transactions this summer - query operation of SAYE/SIP in prohibited periods

Budget 2013 what should companies be doing

Budget 2013 – What should companies be doing?

  • Many of the changes have automatic effect

  • Housekeeping : update plan rules nevertheless

  • Practical aspects : administrators, intranets and portals, employee documentation and communication

  • HMRC approval : not required (or possible!)

  • Shareholder approval : unnecessary

Budget 2013 other things

Budget 2013 – Other things….

  • Statutory residence test

    • Came into effect on 6 April 2013

    • Abolition of “ordinary residence”

  • Entrepreneurs’ Relief/EMI

    • Scope to reduce tax rate to 10%

    • Could be relevant on acquisitions

  • “Employee Shareholder” status

    • No capital gains tax on disposal of first £50,000 of shares

    • Deemed to pay £2,000 for shares

    • Give up certain employment rights, including right to redundancy payments and certain unfair dismissal claims

    • Effective from 1 September 2013, subject to political process…

  • The “GAAR”

    • Supposed to only extend to the most abusive arrangements

    • Ineffective against mainstream corporate tax planning

    • Application to share plans likely to be limited

The future move to self certification

The Future - Move to self-certification

  • What requires HMRC approval currently?

    • Plan rules on establishment

    • Amendments to “key features” (but not Budget 2013 changes…)

  • What will change and when? Expected to be implemented in 2014

  • Benefits and disadvantages:

    • Quicker

    • Safeguards needed?

    • Ability to check tricky points?

The future changes to unapproved arrangements

The Future - Changes to Unapproved Arrangements

  • OTS report now published

  • Report highlights many of the areas consistently cited as sources of complication

  • Headline points:

    • “Safe harbour” EBT

    • Internationally mobile employees

    • Removal of requirement to use the “quarter up” price

    • Online filing of Form 42

  • When? 2014 for minor changes and 2015 for any more significant changes

Real time information

Real-Time Information

  • What’s changing

  • Timeline - where are we up to?

  • Issues for share plans

  • What do companies need to do now?

Real time information1

Real-Time Information

  • New PAYE reporting regime

  • Only affects administration

  • No change to:

    • Basis for calculation

    • Payment due dates



Real time information outline

Real-Time Information - Outline

  • Information relevant to employee’s tax position provided to HMRC in “real-time”

  • Required information will generally be submitted at (or prior to) taxable payment being made

  • Real-time rather than year-end information means more frequent reconciliations and better accuracy

  • Required to support new Universal Credit

Real time information timeline

Real-Time Information – Timeline

  • Consultation during 2011/12

  • Regulations for RTI came into force from 6 April 2012

  • Pilot scheme undertaken

  • Full roll-out began on April 2013

  • All employers switch to RTI by October 2013

Real time information how it works

Real-Time Information – How it works

  • Employer sends “full payment submission” including details of tax + NICs when or before the payroll is run

  • Information is collected by payroll software and sent to HMRC automatically – no need for P14 (i.e. end of year summary) and P35 (i.e. employer annual return)

  • P45 (i.e. leaver statement) and P46 (i.e. new employees without a P45) no longer required as relevant information is collected under RTI

  • Detailed provisions deal with “non-standard” situations

Real time information guidance

Real-Time Information – Guidance

  • New section of HMRC website dealing with RTI

  • Includes guidance for employers

    • Still being developed

    • HMRC welcomes input

  • Opportunity for companies to feedback on practical issues and share experiences

Refresher paye and share plans 1

Refresher – PAYE and Share Plans (1)

  • Income tax arises on delivery of shares following vesting/ exercise (unless tax-favoured arrangements)

  • Taxable amount = value of shares, less any option/exercise price

  • For listed companies, income tax collected under PAYE as a “notional payment”

  • Obligation on employer to operate PAYE in relation to “best estimate” of the taxable amount

Real time information share plans 2

Real-Time Information - Share Plans (2)

  • Delivery of shares = date of “payment” for PAYE purposes

  • RTI regulations recognise that the information required may not be known in advance of “payment” - depends on share price on the day

  • So for “notional payments”, deadline for submission of RTI information is earlier of date tax is deducted and 14th day after end of tax month

Real time information share plans 3

Real-Time Information - Share Plans (3)

  • This is helpful but problems still remain

  • When is tax “deducted”?

    • If date on which shares are sold to fund the tax, all relevant information may still not be known

      • e.g. company may sell upfront at flat 45% rate, but make detailed calculations later

    • Companies generally arrange for sale of shares immediately to fund the tax – this triggers RTI filing requirement although again, detailed information for submission may not yet be in place

Real time information share plans 4

Real-Time Information - Share Plans (4)

  • Compare PAYE in-year penalty regime

    • Introduced from April 2010

    • Risk of penalty arising if PAYE paid late in any month

    • Difficulties for many companies in relation to share plans – administration systems not set up to gather and deliver information within that timeframe

  • Awards vesting/options exercised close to tax month end – particularly difficult to comply with required deadlines

Real time information share plans 5

Real-Time Information - Share Plans (5)

  • Lobbying and feedback to HMRC re in-year penalties

  • HMRC concluded that no special treatment would apply for share-based remuneration

    • “reasonable excuse” might assist in some cases

    • lack of certainty for companies even if using best endeavours to comply

  • HMRC acknowledged that this would need to be looked at in the context of RTI

Real time information penalties

Real-Time Information - Penalties

  • A “soft landing” is expected

  • Common sense approach to “reasonable excuse”, including in the context of internationally mobile employees

  • Penalties do exist for late/inaccurate returns

  • Penalties linked to number of employees on payroll (not the number of defaults)

  • Two bites at cherry…

  • Tax geared penalties if return is more than 3 months late

  • 2013/2014 – have until 19 May 2014

Real time information to do list

Real-Time Information – To Do List

  • Check in with payroll

    • Where are they up to with new systems?

    • Make sure they appreciate issues in relation to share plans

  • Check in with administrators

    • Can you streamline processes to help meet deadlines?

  • Review your plan rules

    • Make sure you have sufficient flexibility in tax indemnity/tax recovery clauses

Budget 2013 outcomes and real time information

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