EMPLOYERS SHOULD be allowed to self certify share schemes for employees, in an effort to make them easier to set up and more widely used, the Office of Tax Simplification (OTS) has said.
In its report on employee share schemes the OTS said there was “unanimous agreement” from employers, employees and tax experts that the current system – whereby HM Revenue & Customs has to approve share schemes before they can receive tax breaks – involved too much time and paperwork.
The OTS also suggested that the Treasury should consider replacing the Company Share Option Plan (CSOP), a type of employee share scheme, which was used by about 40,000 employees in 2010, according to the Employee Share Ownership Centre (ESOC) – well down from its peak of more than 400,000 people a decade ago.
Alternatively, the Treasury could merge the CSOP with the Enterprise Management Incentive employee share scheme, which is aimed at fast-growing smaller companies, the OTS said.
John Whiting, (pictured) tax director for the Office of Tax Simplification, which was set up by the Treasury in July 2010, said: “We have looked hard to see whether the approved share schemes are still valid, given their decline in usage. Accordingly, we spent a lot of time gathering the views of the people that use them, and found that employers saw real benefits, citing greater commitment from employees, and better engagement across all employees.
“We think the way forward is to improve the current schemes and this has led us to recommend a number of technical and practical changes. Overall, we think the recommendations put forward today offer a common sense approach to simplify the various schemes for the thousands of employers offering them throughout the UK and will encourage wider use.”
Accountants welcomed the OTS recommendations.
Giles Capon, tax partner and national head of performance and reward at Ernst & Young, said: “At a time when Government is looking for the business sector to drive economic growth, the ability of companies to provide tax efficient incentives to their employees through share ownership is key.
“Cutting red tape makes good sense. We believe that tax advantaged discretionary share options should continue to be available to employees of companies of all sizes.”
Philip Fisher, employment tax and rewards partner at PKF and a member of the OTS consultative committee, said CSOP share schemes were less appealing than the Enteprise Management Incentive scheme, because they were more complex and employees have to wait three years to exercise their options
But Malcolm Hurlston, chairman of the ESOC, said it would fight any attempt to abolish the CSOP scheme, which he said was a “window of hope” into employee ownership for the lowest-paid and part-time workers and an essential part of “fair society”.
The OTS has also published a report on pensioner taxation, which did not make any final recommendations, but said that age-related allowances, the married couples allowance and the taxation of savings, should be reviewed.
Last week the OTS recommended that accounting rules for small businesses should be made simpler.
Chancellor George Osbrone is expected to respond to the OTS reports in the Budget on 21 March.
Research also finds that 84% of businesses believe that the government has not provided enough information about digital tax plans
A total of £16bn was lost through tax fraud last year, according to estimates released by Pinsent Masons
Rosamond McDowell looks at key changes to inheritance tax policy, which apply from April this year
Additional tax a result of compliance investigations by HMRC, but overall revenue falls