Share plan administration – should I outsource?

Posted by Jennifer at 10:17 on 25 Jan 2016


Share plan administration is never easy, even if you are a small company with only a couple of people participating in your plan.

If any of the points below ring bells, it might be time to think about outsourcing your plan administration.

Do you have the time?

For larger private or smaller listed companies, it can be a real challenge to keep on top of the ongoing record keeping and returns that are involved in share plan administration. This is especially the case where there are significant numbers of participants, more than one share plan in place, or several awards made over a period of time – often at different award prices.

Often the employee or team assigned to manage the administration in-house is sufficiently busy with their own existing 'day jobs' and responsibilities in relation to the share plan arrangements are squeezed in.

Do you have the knowhow?

A common misconception is that the level of knowledge required in order to ensure everything runs smoothly is minimal. If you are running your share scheme, you must understand the deliverables and accountabilities of all areas that come into contact with the scheme. Failure to do so may adversely affect the plan performance and incur expensive tax charges and penalties.

Do you have the knowledge base?

Are you aware of how often securities, tax and accounting standards can change? Can you answer questions from both plan participants and board directors or shareholders? Are you on top of HMRC’s online filing requirements? Keeping up-to-date is unquestionably problematic, but it really is essential in ensuring a scheme's ongoing compliance.

Do you know about the potential penalties?

Mistakes are easy to make if you are not familiar with share plan administration (and can be costly). Miss the deadline for an HMRC EMI award filing and your options may have lost their tax efficiency!

Do you know how to register your plan with HMRC (we can talk you through the registration process) and the penalties for non-registration? Do you know what information you need to collate throughout the year to file on your share plan returns with HMRC, and are you aware of the deadlines (HMRC fines for late filings of the obligatory annual returns)? Are you liaising with your Company Secretary to keep Companies House records up to date? Do you have the transaction data to hand to file a tax return for your Employee Benefit Trust?

Do you know what happens if your plan is disqualified?

If you have the most popular share plan, the Enterprise Management Incentive (EMI), are you fully aware of all the different things that can disqualify the favourable tax treatment? You don't want to fall into one of the many traps that would result in you being the person that needs to tell your most valuable key employees that their expected 10% tax charge is now nearer 60% due to an in-house administration error...

Do you have the capacity to act quickly?

Do you know how to deal with leavers or corporate events? Are you keeping track of when options might vest? If you have an all employee plan like the Share Incentive Plan (SIP) do you know what to do when an employee leaves? Do you know what to do if a major corporate event happens? You must take action on a timely basis, especially when dealing with leavers or major corporate actions. Prevention is very much better than a cure and outsourcing the compliance is a more cost effective solution than advisory fees for remedial work (assuming repair is possible) when things go wrong.

Is it time to outsource?

The issues highlighted above may go some way towards explaining why companies look to outsource this potential minefield. At RM2 we act as plan administrator for most of the share schemes we create.

Our bespoke share plan administration software is aimed squarely at companies where in-house administration is no longer manageable – but where the traditional larger share plan administrators may not be a good fit or cost effective solution for the business.

Our service is so comprehensive it is not uncommon for our Operations Team to pick up and rescue share plans that have been poorly constructed elsewhere. You pay for insurance cover in other aspects of your business to limit damage so think of outsourcing share plan administration in the same way. We provide you with peace of mind that you are compliant and not at risk.

If you are currently encountering problems with your share plan administration, realise that it might be something to pass to an expert, or simply wish to explore a competitive quote against your current outsourced provider, then please contact us for a free consultation regarding your plan administration.

For further details please contact RM2.