OTS highlights complexity of unapproved share schemes

The complexities and barriers involved in ‘unapproved’ employee share schemes have been set out in an interim report published by the Office of Tax Simplification (OTS).

‘Unapproved’ employee share schemes are share schemes and share-based incentives which do not benefit from any tax advantages. The terms of reference are broad, covering the most commonly used types of unapproved share scheme such as share option schemes, long-term incentive plans, deferred share awards and share matching plans, as well as ad hoc arrangements falling within the employment related securities regime.

The OTS project follows on from its work on tax-advantaged (or ‘approved’) share schemes published earlier this year. The OTS is now midway through a complementary review of so-called ‘unapproved’ employee share schemes, looking at the most commonly used, such as option schemes, long-term incentive plans (LTIPs), deferred share schemes, as well as more ad hoc arrangements.

This review, covering technical and administrative aspects, aims to identify recommendations for simplifications, to make it easier for employers to introduce and run such arrangements.

There are a number of fundamental barriers to the uptake of the schemes, which are compounded by their complexity.

These include difficulties in managing schemes for international employees; problems with the valuation of shares (not just for unquoted companies); difficulties in meeting PAYE requirements; confusion around penalties; and the complexity of administrative forms.

The closing date for comments on this report is 28 September 2012.

Final recommendations will be reported ahead of Budget 2013.

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