The Finance Act 2013
A Q & A on how the legislative changes will affect employee share scheme
Business expert Robert Postlethwaite looks at how 2013’s finance act will affect the employee share scheme in a short question and answer article, addressing key issues such as Enterprise Management Incentive, Save As You Earn Options (SAYE) and the Company Share Option Plan (CSOP) in order to help small and medium business owners understand how their enterprise will be affected.
Q: How has Enterprise Management Incentive (EMI) been improved?
A: CGT entrepreneurs’ relief now applies to shares acquired through EMI options, with no minimum percentage shareholding. This means a 10% tax rate is now available where the shares acquired are sold more than 12 months after the EMI option was granted. In addition, the exercise period during which tax favourable treatment is preserved following a disqualifying event has been extended to 90 days.
Q: Have share buybacks been made easier?
A: If a buyback is for the purposes of an employees’ share scheme:
- Shareholders may authorise in advance multiple share buyback contracts
- Companies may pay for bought back shares in instalments
- Companies may finance buybacks out of capital, subject to approval by special resolution supported by a solvency statement (no need for auditor’s report or advertisement)
- Shareholder approval can be given by ordinary resolution (simple majority)
- Companies may buy back small numbers of shares out of capital
- Private companies can hold shares in treasury
BUT there is no change in the tax treatment of sale proceeds
Q: What does “employee shareholder” status mean?
A: With effect from 1 September 2013, an employee can receive a minimum of £2,000 worth of shares in exchange for giving up certain employment rights (unfair dismissal, redundancy, time off for training, flexible working). The £2,000 worth of shares will be free from income tax and NIC, and any growth will be free from CGT. There has to be a cooling off period and the employee must take independent legal advice.
Q: How have Save As You Earn Options (SAYE) and the Company Share Option Plan (CSOP) been improved?
A: Relief from income tax is retained on a cash takeover offer, even if the option exercise occurs within 3 years following grant. Also, SAYE and CSOP options can now be granted over shares which are subject to restrictions.
Q: How has Share Incentive Plan (SIP) been improved?
A: Relief from income tax is retained on a cash takeover offer, even if the SIP shares are sold within 5 years. Shares which are subject to restrictions can now be used in a SIP and the “material interest” test has been abolished.
Q: Are there any other developments of which I should be aware?
A: The Government has announced two new planned tax reliefs connected with employee share ownership: a full CGT relief for sale of a controlling interest in a company to its employees; and income tax (and NI) relief on bonuses paid to employees of employee owned companies. If these are introduced, they are expected to take effect in 2014.
This business advice article about The Finance Act 2013 was written by Robert Postlethwaite of UK200Group member firm Postlethwaite Solicitors Limited. Call 020 7470 8805 or email firstname.lastname@example.org