Transcript Slide 1

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
•
Changes brought in as part of Budget 2013 and introduction of Real Time Information (or “RTI”)
are very much part of that
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Budget 2013
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Follow on from Office of Tax Simplification (“OTS”) review of HMRC – approved plans
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Highlight key changes
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Focus on those of more practical importance
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Also look at some of the other things may have heard of and/or be asked about
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The future?
RTI
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What is it?
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Issues for share plans
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What if it all goes wrong?
BUDGET 2013
Budget 2013 – Summary of Changes (1)
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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)
• 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
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Old position:
– £1,500 limit
– Carried forward amounts must be reinvested within 3 years
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New position:
– Unrestricted dividend reinvestment, unless company elects to impose a
cap
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Took effect on 6 April 2013
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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
• 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
• 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
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Current position
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–
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–
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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
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When? Proposed amendments to the SAYE prospectus have been issued
for consultation
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Implications:
– Revise what is offered
– Update communications accordingly
– Check procedures regarding contributions other than from salary
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)
• 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)
• 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)
• Current position:
– CSOP/SAYE:
no “tax free” early exercise on TUPE transfer
(unless redundancy) or sale of employer company
out of group
– SIP:
“tax free” withdrawal following TUPE transfer/sale of
employer 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)
• 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
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Current position - no protection
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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
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When? Royal Assent
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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?
• 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….
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Statutory residence test
– Came into effect on 6 April 2013
– Abolition of “ordinary residence”
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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…
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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
• 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
• 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
• What’s changing
• Timeline - where are we up to?
• Issues for share plans
• What do companies need to do now?
Real-Time Information
• New PAYE reporting regime
• Only affects administration
• No change to:
– Basis for calculation
– Payment due dates
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
• 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
• 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
• 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)
• 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)
• 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)
• 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)
• 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)
• 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
• 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
• 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
Judith Greaves
Partner
DDI +44 (0) 113 294 5232
[email protected]
Matthew Findley
Partner
DDI + 44(0) 207 490 6554
[email protected]
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