Budget Changes 2003 - Employee Share Plans

Company Share Option Plans ("CSOP")

  1. Currently under the CSOP tax relief is obtained if the option is exercised after three years from grant and three years from a previous tax-relieved CSOP option. The removal of the second three year rule means that tax-relieved exercise of a CSOP option will be allowed anytime after the first three years from the date of grant. However, except as mentioned in 2 below, CSOP options exercised within three years of grant will be taxable under PAYE and liable to NIC in the same way as non-H M Revenue & Customs approved options.
  2. Good leavers (i.e. those who have leave employment on account of injury, disability, redundancy or retirement) may exercise CSOP options within three years of the grant date without being liable to income tax and NIC.
  3. Cashless exercise and other methods of funding the exercise of CSOP options will now be acceptable in the CSOP so long as they do not give the CSOP option-holder a right to receive cash in a way similar to stock appreciation rights.
  4. Market value of shares, for the purposes of the CSOP can now be determined by reference to the price quoted on any Recognised Investment Exchange and not only the London and New York Stock Exchanges, as has been the case.
  5. The CSOP approval process has been speeded up by the removal of the need to submit certified copy of the resolution adopting the CSOP. This means that, provided the correct procedure is followed, the Plan would be tax-approved from the date it is adopted by the company and there would be no need to wait until after it is formally approved by the H M Revenue & Customs.
  6. The definition of "material interest" in the Plan Company’s share (currently 10% for CSOP) will be aligned with other H M Revenue & Customs approved plans.

The operative date for 1-4 above is 9 April 2003. 5-6 above are effective from the date Royal Assent is given (expected around August 2003).

Share Incentive Plans ("SIP")

  1. Apart from monthly deductions from salary participants in the SIP are now also able to purchase up to the annual limit (£1,500) of partnership shares at any time in the year from tax-free salary.
  2. In order to assist administration of the SIP employers can now decide what part of the employee’s salary can be used when calculating the maximum percentage of salary to be spent on partnership shares.
  3. Employees will be able to transfer from one SIP to another SIP in the same group in a tax year. Currently they are not allowed to participate in more than one SIP in a tax year.

The effective date for the above would be the date of Royal Assent.

Other Significant Measures

  1. New rules in relation to employee benefit trusts apply to the computation of profits for periods ending on or after 27th November 2002.
  2. Broadly corporation tax deduction for a contribution to the trust will be deferred until the payment gives rise to an income tax charge or would have but for the fact the charge is tax-relieved. The new statutory deductions for employee share schemes are not affected.
  3. New measures will allow listed companies to purchase their own shares, hold them as "treasury shares" and subsequently sell them into the market or cancel them. The need to establish a trust to warehouse shares in certain circumstances would be removed with significant savings to costs and administration.

Contact information:

ESS Consultants.
Kensway House
388 High Road
Ilford
London Borough of Redbridge
IG1 1TL
Tel: 020 7493 9595
e-mail: inf@employeeshareschemes.co.uk
website: www.employeeshareschemes.co.uk