It is interesting to learn how many employers in the UK adopt HMRC approved share plans. We set out below the available information published by HMRC as a guide.
Headline points
- Adoption rates are increasing for employee share plans.
- HMRC have withdrawn the very helpful service which enabled private companies to check with HMRC the taxable value of shares.
Analysis of available data on share scheme plan adoption in the UK
In 2015 HMRC introduced a requirement for companies to submit the share schemes information online. The technical shift affected the availability of 2014-15 share scheme data. The 2015-16 statistics are anticipated to come out in June 2017. Therefore the most recent statistics are those for 2012-13.
Latest share schemes statistics published by HMRC show 2012/2013 usage statistics for HMRC approved employee share schemes.
Amongst the dry statistics there is some important information for employers looking to make equity awards to directors and or employees.
To begin with, the statistics show that under HMRC approved employee share schemes overall tax savings of £840m were made, double that saved in 2011/2012, with this increase being attributed to share prices picking up.
Clearly, with the recovery continuing to pick up pace, tax savings will only increase, but only for those who have an HMRC approved scheme in place.
The statistics do show that there has already been an increase in the number of companies taking up HMRC approved employee share schemes and, for companies without a scheme in place, now can only be a good time to follow suit.
What the statistics mean for HMRC approved share plans
Statistically the take up rate for HMRC approved SAYE plans and HMRC approved Share Incentive Plans (“SIPs”) are much lower than the take up rate for HMRC approved Company Share Option Plans (“CSOPs”). This is perhaps because CSOPs can be implemented on a discretionary basis whereas the HMRC approved SAYE and SIP plans are all employee plans – heavy on dilution and implementation costs.
The take up rate for EMI options is far greater than that for any of the other HMRC approved plans.
In our experience, the Enterprise Management Incentive (“EMI”) option scheme was the scheme of choice, particularly for smaller non-listed companies. This is reflected in the HMRC statistics, which show that the increase in the number of companies taking up HMRC approved schemes is attributable to an increase in EMI schemes. Until recently Employee Shareholder Shares were a popular choice for top management and directors but high level of abuse made the government withdraw the scheme as of 1 December 2016.
EMI share options
For those that meet the necessary qualifying criteria, EMI share options provide considerable tax advantages, not only for employees but also for their employers, who can claim corporation tax relief calculated by reference to the income tax that would have been payable if the option exercise was not an EMI option.
Example of corporation tax savings with EMI options
If the employee was exempt from income tax of say £20,000 on exercise of his EMI option then the employer would receive a corporation tax deduction on the £20,000 which at a 20% rate of corporation tax (as at 2016/17) is a tax saving for the employer company of £4,000. If say 40 employees exercise EMI options on the sale of the business that would give a corporation tax saving of £160,000.
No tax is payable by the employee on exercise of the EMI option but tax is payable on sale of the shares acquired on exercise at 10% which is far less than comparable rates of income tax.
Prediction for EMI options
EMI schemes became more attractive when the value of shares over which EMI option can be granted, in respect of each individual employee, increased from £120,000 to £250,000 (calculated as at the date of grant). The HMRC report forecasts that future figures will show an increase in the number of employees granted EMI options and the value of EMI options granted because of this. We anticipate EMI will continue to be extremely popular amongst high tech companies, especially as EMI and EIS schemes can be combined. As far as we know there are no plans within HMRC to abolish EMI options.
Withdrawal of valuation checks by HMRC
HMRC have already withdrawn the service formally offered under which HMRC comment on the unrestricted tax market value of shares awarded outside of an HMRC approved plan. It remains to be seen what impact the withdrawal of this service has on share plans generally. The impact is most likely to be felt by employers awarding alphabet shares and growth shares.
The HMRC service under which they agree the taxable value for HMRC approved plans remain available for employers. However, HMRC have indicated that the service is under review.
Catherine Gannon is a member of the employee share plan team. There are many surveys and statistics which show that companies with employee share plans in place out perform those without. We implement a wide range of solutions for a wide range of business needs.