Government proposes allowing companies to self-certify tax-advantaged share plans for employees

The change, which will now be consulted on by HMRC, was recommended by the Office of Tax Simplification (OTS) earlier this year. The existing approach, the OTS said, caused "lengthy delays" and generated "excessive paperwork" for companies.

The Government also intends to conduct further research on whether one particular scheme, the Company Option Share Plan (CSOP), could be phased out or replaced in light of its declining use. The Government will announce the outcome of this work in the autumn and publish a further consultation if necessary, said David Gauke, Exchequer Secretary to the Treasury.

Tax law expert Judith Greaves of Pinsent Masons, the law firm behind Out-Law.com, said that the move was "widely expected" following publication of the OTS recommendations.

"This will be a change of approach for companies who are used to having the certainty of HMRC's confirmation that they have complied with the legislative requirements, and it is helpful that the consultation recognises that companies will need clear rules, guidance in order to feel comfortable with the new regime," she said.

However, she said that, although understandable, it was "disappointing" that the Government was not taking forward more of the OTS' proposals.

"The Government is taking forward most of the OTS proposals - at least as part of a further fact-finding exercise - but there are some notable exceptions," she said. "For example, it is disappointing that we will not see a uniform three-year holding period before participants can take their SIP shares free of tax. That would simplify SIP and increase its attractiveness to employees- but has been rejected as too costly to the Exchequer."

Approved share schemes provide employees with a way of building up and ultimately benefiting from a financial stake in their employing company. There are currently four recognised schemes in operation which attract various tax advantages. These include Save As Your Earn (SAYE), where employees can save up their own money before deciding whether to use this to acquire shares in their company at a discount, and the more sophisticated Share Incentive Plans (SIP). There are also two discretionary schemes, CSOP and the Enterprise Management Incentive (EMI), which enable employees to have access to future growth in the value of the company.

EMI schemes do not currently require HMRC approval before share options can be issued, however employers intending to establish one of the other three plans must obtain HMRC approval of their proposed scheme before it can be implemented.

In its response to the OTS' recommendations, the Government said that any self-certification arrangement must be designed "carefully ... in order to ensure the appropriate protections for businesses and their employees". In addition to the creation of "sufficiently clear rules and guidance" for businesses and their advisers, a self-certification scheme must also contain requirements for businesses to notify HMRC of "relevant events" in relation to their schemes. HMRC must also be given powers to enquire into the operation of schemes, and to "recoup tax and apply penalties" where appropriate.

The Government said that it was not accepting all of the OTS' recommendations, in some cases because these would be "explored further as part of future work or reviews". In some cases, it also had to balance simplification against its "wider objectives" for the tax system including impact on public finances, the need to ensure tax advantages remained "effectively targeted" and, in some cases, "the risk of opening schemes to abuse".

In its report, the OTS also recommended that the Government streamline the existing 'good leaver' rules so that employees receive more favourable tax treatment by default. The Government said that circumstances where a participant could leave a scheme early and still benefit from tax advantages should remain "specified exceptions", but has instead proposed harmonising the 'good leaver' circumstances across SIP, SAYE and CSOP schemes to reduce "potential complexity".