There is always so much going on in the world of employee share plans. These are a key area of focus for investors, management and employees of all types of company. They are also an important consideration on exit, overseas expansion and other major corporate and employee events, where we are often brought in to help things run smoothly and deal with any issues. Changes in legislation and practice also keep us busy. In particular, the latest reforms for company share option plans (CSOP) mean that many of our clients who have outgrown enterprise management incentives (EMI) are now able to operate a tax-favoured discretionary option plan for the first time.
What are the hot topics?
A long overdue simplification of EMI requirements took effect on 6 April. Whilst this was welcome, implementation of the changes in practice has required some thought. For example, although employees are no longer required to sign working time declarations, the working time commitment itself remains, so there may still need to be some acknowledgement that this is met. In addition, the EMI reforms removed the requirement to include details of share restrictions in option grant documentation, but the extent to which these restrictions should still be signposted is unclear, following HMRC’s latest guidance that employees still need to be aware of all the option terms and this includes any restrictions on the shares that can be acquired (ERS Bulletin 50, dated May 2023).
What do you know now that you wish you’d known at the start of your career?
I’m glad that I didn’t know where my career would lead me. If I had, I may have chosen to stay at a UK law firm for my entire career, as that is where I have ended up. I would not have benefited from my years of experience as an executive pay consultant or as in-house head of reward, which have given me a much better view of what clients are looking for and their day-to-day challenges. And I may never have made it to Singapore, which was a fantastic place to live, work, eat and travel – except during the pandemic which left us stuck on a small island for two years!
Is any recent tax legislation or guidance causing a problem?
Whilst last year’s EMI guidance on discretions clarified HMRC’s position to a large extent, there remain nuances which are not straightforward. Use of discretion which changes the fundamental terms of an option can result in a release and re-grant of the option, unless the amendment is minor (see ETASSUM54310). So, for example, if discretion is used to change the timing of exercise of an option, this may be treated as the creation of a new right and risk loss of valuable tax benefits. EMI plan documents need to be drafted carefully, with appropriate warnings on use of discretions, to avoid storing up problems for the future. And this makes it even more essential for companies to take robust legal advice on their EMI plans, to ensure they are set up and operated in the right way.
What should we look out for later this year?
HM Treasury has just published its call for evidence on the SAYE and SIP all-employee share plans. The consultation closes on 25 August. The stated aim of the call for evidence is to look at opportunities to improve and simplify the schemes. This could make these plans more accessible for those companies who currently find them too onerous and costly to operate.
You might not know this about me but...
We have a new puppy and our two girls are completely besotted. Luckily, we are also fonder of him than we are of all the shoes he has already chewed to bits. We have called him Raffles in honour of our five years in Singapore, which ended last summer when I joined the partnership at Taylor Wessing back in the UK. Although his name is by no means an endorsement of British colonialism, we just preferred it to noodle!
There is always so much going on in the world of employee share plans. These are a key area of focus for investors, management and employees of all types of company. They are also an important consideration on exit, overseas expansion and other major corporate and employee events, where we are often brought in to help things run smoothly and deal with any issues. Changes in legislation and practice also keep us busy. In particular, the latest reforms for company share option plans (CSOP) mean that many of our clients who have outgrown enterprise management incentives (EMI) are now able to operate a tax-favoured discretionary option plan for the first time.
What are the hot topics?
A long overdue simplification of EMI requirements took effect on 6 April. Whilst this was welcome, implementation of the changes in practice has required some thought. For example, although employees are no longer required to sign working time declarations, the working time commitment itself remains, so there may still need to be some acknowledgement that this is met. In addition, the EMI reforms removed the requirement to include details of share restrictions in option grant documentation, but the extent to which these restrictions should still be signposted is unclear, following HMRC’s latest guidance that employees still need to be aware of all the option terms and this includes any restrictions on the shares that can be acquired (ERS Bulletin 50, dated May 2023).
What do you know now that you wish you’d known at the start of your career?
I’m glad that I didn’t know where my career would lead me. If I had, I may have chosen to stay at a UK law firm for my entire career, as that is where I have ended up. I would not have benefited from my years of experience as an executive pay consultant or as in-house head of reward, which have given me a much better view of what clients are looking for and their day-to-day challenges. And I may never have made it to Singapore, which was a fantastic place to live, work, eat and travel – except during the pandemic which left us stuck on a small island for two years!
Is any recent tax legislation or guidance causing a problem?
Whilst last year’s EMI guidance on discretions clarified HMRC’s position to a large extent, there remain nuances which are not straightforward. Use of discretion which changes the fundamental terms of an option can result in a release and re-grant of the option, unless the amendment is minor (see ETASSUM54310). So, for example, if discretion is used to change the timing of exercise of an option, this may be treated as the creation of a new right and risk loss of valuable tax benefits. EMI plan documents need to be drafted carefully, with appropriate warnings on use of discretions, to avoid storing up problems for the future. And this makes it even more essential for companies to take robust legal advice on their EMI plans, to ensure they are set up and operated in the right way.
What should we look out for later this year?
HM Treasury has just published its call for evidence on the SAYE and SIP all-employee share plans. The consultation closes on 25 August. The stated aim of the call for evidence is to look at opportunities to improve and simplify the schemes. This could make these plans more accessible for those companies who currently find them too onerous and costly to operate.
You might not know this about me but...
We have a new puppy and our two girls are completely besotted. Luckily, we are also fonder of him than we are of all the shoes he has already chewed to bits. We have called him Raffles in honour of our five years in Singapore, which ended last summer when I joined the partnership at Taylor Wessing back in the UK. Although his name is by no means an endorsement of British colonialism, we just preferred it to noodle!
