Share Scheme Administration-beware of DIY!
Employee share schemes are complicated. Badly administered schemes can cost companies dearly in terms of wasted time and effort, as well as the possible penalties and fines from HMRC. In addition, a poorly administered scheme may lose the confidence of the participants; a disaster given the purpose of implementing a share scheme in the first instance.
When schemes go wrong
RM2 in addition to designing share schemes are often asked to administer existing share schemes, of which on average, one in three will have previously 'gone wrong'. Of this, the most common problems are usually:
- Incorrect, late or missing scheme returns. Detailed knowledge of the ITEPA 2003 (as amended) is required in order to complete the returns correctly;
- Hidden tax liabilities of which the company is unaware. This could occur following an alteration to share capital or the company structure. Quite often a simple change will result in a share scheme losing all tax benefits;
- Failure to account properly for PAYE. There are several reasons included in this problem, one being where a private company is unaware that its shares are readily convertible assets. The consequences may be irrecoverable double taxation.
In addition, if a share scheme includes any element of tax avoidance, disclosure should have been made under the so-called DOTAS rules, or there may be serious consequences.
There are a number of issues which frequently come up and companies need to be aware of in the administration of their share schemes:
Changes to share capital are often made by private companies when introducing share schemes. All special resolutions must be submitted to Companies House within 15 days together with an amended set of articles and a statement of capital in prescribed form. Auditors should receive copies of all documentation in relation to written resolutions.
Where an employee benefit trust is used, the trust should have been properly registered and must submit an annual self-assessment return. The administrator should give detailed advice to ensure that unexpected tax charges do not arise under the complex third party remuneration rules introduced in the 2011 Budget.
Share scheme participants must complete self assessment returns when capital gains tax is payable or income tax is due that is not collected via PAYE. The administrator should provide detailed advice and should also support effective staff communication through the provision of a telephone helpline and dedicated website portal. If PAYE is due, the administrator should advise the company's payroll function about the timing and amount of any deductions.
The administrator should advise quoted companies in relation to their obligations under the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations and where applicable, the FSA Disclosure and Transparency Rules and Listing Rules and the UK Corporate Governance Code. Listed companies (and some quoted on AIM) will need advice in relation to the guidelines issued by the Association of British Assurers.
RM2 has developed proprietary software which manages the administration of every share scheme type on a single platform. The system controls the maintenance of scheme registers, the timely and accurate completion of all statutory returns, provision of reports to auditors, payroll staff and employees, and the management of scheme documents. The system generates the correct notices and returns in respect of the grant and exercise of scheme rights and termination of employment.
The administrator should offer clients regular reviews to advise on relevant changes to legislation or HMRC custom and practice. The administrator should offer clients regular reviews to advise on relevant changes to legislation or HMRC custom and practice. The administrator should also be ready at short notice to respond to events such as a company reconstruction, change of control, merger, flotation, or re-grant or roll-over of share awards.
If you would like to discuss any aspect of share scheme administration with us please call on 020 8949 5522. We also provide a Share Scheme Health Check service whereby we review your existing share scheme and alert you if it is not operating correctly.