Tax

Employee Incentives Update | Spring 2019

Written on 1 May 2019

Welcome to our Employee Incentives Update for spring 2019.

This edition includes:

  • A reminder to file employment-related securities annual returns with HMRC by 6 July 2019.
  • Updates from HMRC relevant to EMI plans.
  • The BEIS Committee report ‘Executive rewards: paying for success’.
  • Termination payments – delayed employer NICs changes coming in on 6 April 2020.
  • A briefing from our Workforce Solutions team on the new disguised remuneration loan charge regime.
  • Recent international developments and comment from France, Belgium and Spain.

We hope that you find this update interesting. If you would like to discuss any of the issues raised, please let us know. Our contact details are set out below.

Annual returns for employment-related securities | Deadline 6 July 2019

The deadline for submitting annual returns in respect of employment-related security arrangements for the tax year ending 5 April 2019 is 6 July 2019. This is an important date to note, as late filing will trigger automatic penalties from HMRC and will have serious consequences for tax-advantaged plans.

Read more >

Employment-related securities | HMRC updates and developments

HMRC published ERS Bulletin 31 on 21 March 2019, which covers a number of developments on employment-related securities. These primarily relate to enterprise management incentive (‘EMI’) plans.

Read more >

Share valuations | EMI schemes

HMRC has updated its guidance to indicate that valuations for EMI agreed on or after 1 April 2019 are valid for an extended period of 90 days from the date of reaching agreement of the market value.

Previously, valuations were typically agreed for a period of 60 days. However, HMRC was receiving a high number of requests for extensions. The change in HMRC’s practice is intended to enable companies to grant options within the 90 day window without the need for an extension. If EMI options have not been granted within the agreed period, then the company will now need to submit a fresh application for share valuation (with a new signed Val 231 form).

Companies should carefully note the terms of any agreement reached with Shares and Assets Valuation and diarise the applicable expiry date. It is important that EMI options are granted within the agreed valuation window, as extensions will no longer be granted.

Note that the agreed period would end early if a significant event happens which is likely to impact the share valuation. These include any change in the share or loan capital of the company, any arm’s length transaction involving the shares; and the publication of new financial information. It is important that HMRC is informed of any such events which happen (or are contemplated) prior to the grant of EMI options, as they are likely to affect the valuation.

BEIS Committee report | Executive rewards: paying for success

On 26 March 2019, the Business, Energy and Industrial Strategy Committee published its report ‘Executive rewards: paying for success‘. The report is part of the Committee’s review of corporate governance, and considers progress on the government’s attempts to address the gap between chief executive pay and company performance/employee pay.

Whilst welcoming evidence of a shift to extended terms for LTIPs, the Committee advocates a simpler structure based on fixed term salary plus deferred shares (vesting over a long period), and a much-reduced element of variable pay. It argues for a much stronger link between executive and employee pay – including by greater use of profit sharing schemes.

The Committee welcomes the recent introduction of pay ratio reporting, but calls for it to be applied more broadly – for example, to be extended to include all employers (not just quoted companies) with over 250 employees.

Read more >

Termination payments | Delayed employer NICs changes coming in on 6 April 2020

The previously announced introduction of employer’s Class 1A NICs on termination payments above the £30,000 statutory threshold (which is intended to harmonise NICs with the income tax measures introduced on 6 April 2018) will now come in on 6 April 2020. An NICs Bill containing the necessary legislative measures was presented to parliament on 25 April 2019.

The new disguised remuneration loan charge regime | Are staffing companies and “onshore employers” likely to face big retrospective claims?

The controversial loan charge legislation came into effect on 6 April 2019. This legislation creates a new one-off tax charge on disguised remuneration loans made on or after 6 April 1999 if part or all of that disguised remuneration loan remained outstanding on 5 April 2019.

Our recent briefing from our Workforce Solutions team considers the new legislation and explains why staffing companies and end-users may also face the risk of liability under legislation pre-dating the loan charge regime.

Read more >

Belgium | Payments made to employees of Belgian affiliated companies: be aware of the Belgian tax consequences for the Belgian employer

From 1 March 2019, a Belgian employer that is subject to corporate income tax and whose employee or director receives (by reason of their professional activities) remuneration and/or benefits in kind from a non-Belgian affiliated company is deemed to have granted such remuneration or benefits itself. This would include stock options granted by a non-Belgian affiliated company to such individuals.

Read more >

France | The new social risk relating to certain management incentive packages

A recent decision of the Social Chamber of the French Supreme Court concerning bons de souscription d’actions (share purchase warrants) will have important consequences for employers that are considering offering such incentives.

Read more >

Spain | stock option system

Our Spanish partner David Miranda’s opinion article commenting on problems with the Spanish stock options system has been published on sifted, a new media site for Europe’s tech innovators and entrepreneurs.