The government has published a response to its call for evidence, 'Non-Discretionary Tax-Advantaged Share Schemes'. Respondents suggested various improvements to the Share Incentive Plan (SIP) and Save As You Earn (SAYE) schemes, which are under consideration.
Generally, the responses were positive on the current tax-advantaged employee share schemes. The main concerns were the barriers to employee participation, primarily, affordability, long holding periods, low limits, complexity, recent market volatility and a lack of awareness.
There are four tax-advantaged employee share schemes currently offered under UK legislation.
- Share Incentive Plans (SIP).
- Save As You Earn (SAYE).
- Enterprise Management Incentives (EMI).
- Company Share Option Plans (CSOP).
SIP and SAYE are non-discretionary (all-employee) schemes, while EMI and CSOP are discretionary schemes.
Employee share schemes are a way for companies to incentivise and reward employees by offering them a direct stake in the company and the opportunity to share in the company's success, alongside generous tax treatment.
- The conditions for tax relief vary by scheme.
See Employee Shares: the Employment-Related Securities rules
SAYE allows a company to give eligible employees the option to acquire shares in the company at a price that is fixed when the option is granted.
- Employers can choose to offer a discount of up to 20% on the shares' market value.
- Employees can save up to £500 per month into an SAYE account over three or five years. The SAYE account is held with a designated bank or building society.
- At the end of the designated period, the total savings paid into the SAYE account can be used to acquire the shares.
- Employees are not obliged to exercise their options, and if they choose not to, they can withdraw their funds.
SIP allows eligible employees to receive shares in their employer company without incurring Income Tax, National Insurance Contributions (NICs) or CGT.
- The shares are held in a trust on behalf of the employee and must usually be kept there for five years to secure the full tax advantages.
- The scheme provides companies with the flexibility to offer different share awards.
- Free shares, partnership shares, matching shares or dividend shares.
This call for evidence sought views on the usage of the SAYE and SIP schemes and whether they are effective in achieving their stated policy objectives.
Response
The call for evidence received 84 responses.
- Most respondents agreed that SAYE and SIP fulfil their stated policy objectives of aligning employee and shareholder interests and encouraging financial planning.
- The responses indicated that both schemes help with recruitment and retention, but are less effective than CSOP and EMI due to lower limits.
- SIP and SAYE provide equity incentives for lower-paid/junior employees who might not otherwise be offered them under a discretionary plan.
- SAYE was praised for its low risk, as employees can withdraw their savings, but concerns were raised about the length of the savings contract.
- The SIP five-year holding period was also seen as too long for modern working practices, i.e. employees tend to move jobs more frequently.
- Respondents identified the main barriers to company participation as complexity, high costs, lack of savings providers (SAYE), lack of awareness, current economic climate and the increase of global company operations.
- Respondents identified the main barriers to employee participation to be affordability, long holding periods, low limits, recent market volatility, lack of awareness and complexity.
- Suggested improvements to the schemes:
- Reduce SIP holding period and SAYE contract length.
- Increase scheme limits and SAYE discount.
- Extend eligibility to private equity companies and gig-economy workers.
- Improve tax advantages and simplify rules.
- Enhance awareness through campaigns and guidance.
- Views on the flexibility of the schemes were mixed. Some wanted more flexibility (shorter holding periods or broader eligibility) and others feared this added complexity.
- The majority of respondents felt that SAYE and SIP were not appropriately targeted at lower- and middle-income earners due to financial barriers and long holding periods.
- Many respondents noted that SAYE and SIP were typically viewed as savings or investment benefits, not as a form of remuneration or incentive by employees.
Next steps
- The government will consider whether changes are required.
- HMRC will review its guidance for the schemes and make changes if necessary.
- HMRC will continue to work with stakeholders on the administration of the schemes.
Useful guides on this topic
CSOP: Company Share Option Schemes
What is a Company Share Option Scheme (CSOP)? What are the tax benefits of a CSOP?
EMI: Enterprise Management Incentive Scheme
What is the Enterprise Management Incentive (EMI) scheme? What's the difference between EMI and an unapproved share scheme?
Employee Shares: the Employment-Related Securities rules
What are the tax consequences when a company gives shares to an employee or director? What are employment-related securities? What is best: shares or share options? How do you set up a share scheme?
Employment-Related Securities: Reporting
What are the reporting requirements for Employment-Related Securities (ERS)? When is the deadline? How do I register an ERS scheme? What are the penalties for failing to report ERS?
External link
Non-Discretionary Tax-Advantaged Share Schemes Call for Evidence Summary of Responses