The Finance Bill 2016: share scheme impacts

Posted by Jennifer at 10:03 on 5 Jan 2016


At the end of last year, 9th December 2015, the draft Finance Bill 2016 was published as part of the Spending Review and Autumn Statement 2015; we’ve reviewed the draft legislation to identify any potential impact this year’s Bill may have on the operation of share schemes:

EMI qualification

If a company operates Enterprise Management Incentive (EMI) options and subsequently comes under the control of another company, this is usually categorised as a ‘disqualifying event’ under EMI rules. The Finance Bill 2016 provides an exclusion to this rule where there is a change of control whereby the company is acquired by an Employee Ownership Trust (EOT), proposed to be backdated to 1st October 2014.

EMI shareholders

Typically, EMI shareholders can exchange their options following certain corporate restructures or takeovers, without losing the tax advantages. The Finance Bill 2016 proposes to extend this to include a corporate event where minority shareholders have the right to be bought out by the acquirer (sell out rights), proposed to be backdated to 17th July 2013.

Restricted Stock Units

The tax treatment of Restricted Stock Units (RSUs) is clarified within this new Bill. An RSU is characteristically an automatic right to acquire shares, subject to certain conditions being met. There has, however, been confusion about the taxation of such instruments but the Finance Bill 2016 confirms that where there is a clear right to acquire shares these will be treated as a securities option and, thus, no tax will arise under the general earnings provision. This will relate to all awards made from 6th April 2016.

SIP disqualification events

The Share Incentive Plan (SIP) legislation is amended in the new Bill to include disqualifying events relating to SIP shares. If changes are made to the shares that materially affect the value of the SIP shares or, if SIP shares are treated differently from other shares, this will be categorised as a disqualifying event. This change reinforces the fact that SIPs are intended to be for the benefit of all employees and that the plan should be operated on a fair and equitable basis.

Late registration

As of 6th April 2016, late registration of tax-advantaged share schemes will no longer mean the loss of tax advantages provided the establishing Company has a reasonable excuse for failure to notify.

Overall, the Finance Bill 2016 can be seen as beneficial in the share scheme industry and further reinforces the Government’s commitment to supporting employee ownership and share ownership; encouraging companies to use these arrangements to reward, motivate and attract employees to benefit in economic success.