Employment related securities | Latest update from HMRC
On 3 October 2019, HMRC published Employment Related Securities Bulletin 33. This includes some helpful updates on HMRC practice, in particular on the grant of replacement enterprise management incentive (EMI) options and the reporting of any "net settlement" of non-tax advantaged options.
Replacement EMI options: new working time declaration required
Where a company grants replacement EMI options on a company reorganisation involving the exchange of EMI options, it is HMRC's view that a new working time declaration must be signed on the grant of the replacement options.
This is because the individual must be an eligible employee of the acquiring company or group at the time the new option is granted.
It has long been established practice that the grant of replacement options must be notified to HMRC within 92 days of grant. Further confirmation from HMRC that new working time declarations should also be signed (which reflects the approach already adopted by many advisers) is a logical part of this process.
Net settlement: annual reporting
HMRC has considered how companies should report any 'net settlement' of non-tax advantaged awards in their annual returns.
When shares are acquired by employees under a non-tax advantaged plan, the employer usually has an obligation to account for income tax and national insurance contributions (NICs) through PAYE. The employer will then recover such liabilities (including any employer's NICs which have been transferred) from the relevant employees. The employee may do this by selling a number of the shares received to cover such liabilities.
Alternatively, the employee may reimburse the employer by way of "net settlement" of the share award. Under this route, a company uses its own cash to settle the liabilities that are due to HMRC under PAYE, based on the full value of the shares under award. The company then issues fewer new shares to the employee, so that the value of the shares received by each employee is equal to the net value they would have enjoyed if they had received all the shares and sold some to cover the liabilities due.
The Bulletin confirms that companies should report the cash and shares components of such a transaction as separate entries on the "Other Options_V3" tab of the "Other" template, and provides details of the appropriate rows to complete where relevant. Companies that offer net settlement should refer to this new guidance in completing their annual returns.
SAYE: a reminder of the extended savings holiday period
In September 2018, HMRC extended the savings holiday period for participants in tax-advantaged savings-related share option (SAYE) plans, from 6 to 12 months.
The Bulletin includes a reminder about this extension, confirming that it is available to all participants.
If a participant takes a savings holiday then the original SAYE contract is extended to reflect the number of months the participant has not contributed to the plan.