Changes to Approved Share Plans

Andrew Quayle, Nicholas Stretch, Graham Muir and Catherine Merry

Following yesterday’s enactment of the Finance Act 2013, a number of significant changes have been made to the operation of tax-advantaged share plans; including EMI, CSOP, Sharesave (SAYE) and Share Incentive Plans (SIPs). There are a number of actions that companies should now consider taking.

1.     Update plan rules and documentation

Many changes will apply automatically, without there being any need to change the plan rules. Nevertheless, companies should consider whether updating their plan rules to ensure that they properly reflect the new legislation may make it easier to administer their plans in the future (and it may be possible to make such changes without seeking further approval from HM Revenue & Customs and without seeking shareholder approval). Companies should also update all award documentation and guidance notes to ensure that the participants are provided with the correct information.

The key changes that will apply automatically are:

  • CSOPs, SAYE and SIPs will no longer need to have a ‘specified age’ for retirement. Retirement at any age will be treated as a ‘good leaver’ event.
  • The exclusion of individuals with a ‘material interest’ in the company has been removed from SAYE and SIPs and amended in relation to CSOPs.
  • SIP shares may be withdrawn, and SAYE options exercised, in a tax-efficient manner following specified ‘takeover’ events.
  • SAYE options may be exercised in a tax-efficient manner following a TUPE transfer or disposal of an employer company out of the group.
  • The existing limits for SIPs on dividend re-investment have been removed.

2.     Consider impact of changes on usual company practice

Even if a company chooses not to update its plan rules, it must ensure that it is aware of the changes that apply automatically and ensure that it operates its plans in accordance with them. Companies may also wish to consider the impact of some of the automatic changes; for example, the removal of the ‘specified age’ for retirement may lead to more options becoming exercisable following retirement.

3.     Take advantage of ‘optional’ provisions

Although many changes take place automatically, there are some beneficial changes that may only apply if a company does amend its plan rules. For example, the following changes will only apply if the plan rules specifically permit them:

  • CSOP options may now be exercised in a tax-efficient manner following specified ‘takeover’ events.
  • CSOP options may now be exercised in a tax-efficient manner following a TUPE transfer or disposal of an employer company out of the group.
  • EMI options may be exercised in a tax-efficient manner up to 90 days (as opposed to 40 days) following a ‘disqualifying event’.

4.     Re-consider use of ‘approved’ plans

One of the key changes, which may be of particular interest to companies that are not listed, is that the prohibition on using ‘restricted shares’ for CSOP, SAYE and SIP has been lifted. This brings the plans in line with EMI and potentially makes them a more attractive and workable choice for companies that are not listed. For example, CSOP may now be a much more viable alternative to EMI for companies that do not meet the qualifying criteria of EMI.

Please do get in touch if you would like to discuss the implications of the changes for your share plan arrangements.

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