Share plans post FA2014 Registration and online filing John Franklin – New Bridge Street

1. Share plans post FA2014Registration and online filingJohn Franklin – New Bridge Street

2. 2014 – a major milestone for UK share plans 2013 Overhaul of HMRC approved plans (including alignment of leaver provisions and extension of leaver tax relief) 2003 Major overhaul of unapproved award taxation 1978 Approved profit sharing scheme 1984 Approved CSOP 2015 Changes to internationally mobile employee taxation 2014 Registration Self certification of tax favoured plans Online filing Increased SIP/SAYE limits Extension of tax relief on change of control 2000 Approved SIP 2012 Disguised remuneration anti avoidance 1980 Approved Sharesave Scheme 1

3. The times they are a changin’ at HMRC share plans Self certification Registration HMRC Share Schemes Unit Online filing 2

4. How have we got here? • Online filing for all plans on the cards for some years • HMRC staff progressively reduced (10 to 2) • OTS review of approved and unapproved plans in 2012 • 2nd stage of OTS recommended reform of tax favoured plans – “HMRC approval” to be replaced with “self certification” • Made sense to introduce both changes together as a major overhaul of how HMRC deals with share plans • Registration of plans a necessary first step to implement these changes 3

5. Overview All plans: • Registration • Online filing • New penalties Tax favoured plans only: • No more HMRC approval • Self certification 4

6. Registration of plans 5

7. Registration process • Government Gateway - HMRC Online Services (www.online.hmrc.gov.uk) • PAYE for Employers (User ID and Password) • Employment Related Securities • Register a scheme or arrangement (Unique ref. no. ≠ ) • View schemes or arrangements • EMI notifications • Notify HMRC of cessation of a scheme (provide “date of final event”) • More details: • www.hmrc.gov.uk/shareschemes/erss-bulletin-15.pdf (Registration procedure) • www.hmrc.gov.uk/shareschemes/erss-bulletin-16.pdf (FAQs) • Deadline 6 July 2015 (or 6 July after tax year of first award) 6

8. Registration of tax-favoured and non tax-favoured plans • You can chose scheme name to register under • Get your registration right (name and scheme type cannot be corrected – only solution is to cease scheme and re-register) 7

9. Who can register * 3rd party or internal (some IT teething issues) 8

10. Registration – potential problems of the Government Gateway 9

11. Annual returns – move to online filing • Must be filed electronically (unless HMRC agree otherwise) • Applies for year ending 5 April 2015 and later years (so first deadline is 6 July 2015) • First annual return required for earlier of: • first tax year in which plan is registered (even if not operated!) • first tax year in which an award is made (if registration is after tax year of first award) • Once there is an obligation to make a return, one must be made each year (nil return for any year in which there are no reportable events)… • … until plan terminated (notice given to HMRC that there will be no more reportable events) 10

12. Online filing - practicalities • It will be possible to upload schedules of data: • equivalent to attaching spreadsheets to paper returns • means that information can be provided under a single registration from different administrators 11

13. Online filing - amending returns • Penalty for errors in a return: • up to £5,000 • material inaccuracy which is careless or deliberate • avoided by submitting a corrected return without delay • Amended return required: • information omitted • information included that should not have been • any other error or inaccuracy • More guidance on penalties promised 12

14. Timeline and penalties for late registration/annual returns 7 July 2015 Additional £300 penalty for late returns October 2014 Online filing for 2014/15 available 7 January 2016 Additional £300 penalty for late returns • 6 July 2015 • Deadline for registration/self certification for 2014/15 awards (£5,000 penalty if deadline missed) • Deadline for filing returns for 2014/15 (£100 penalty if late) 7 April 2016 £10 per day penalty for further delayed return 7 October 2015 Additional £300 penalty for late returns • 6 April 2014 • Registration and self-certification opens online • EMI notification moves online 13

15. Any questions? 14

16. Securing tax approved status for CSOP, SAYE and SIP as from 6 April 2014Matthew Ward – New Bridge Street

17. Introduction / content • Introduction • In this talk: • A quick recap on the pre 6 April 2014 approval process • An overview of the new approval process • The self certification deadlines and the impact of missing them • How to self certify • HMRC’s powers to make “enquiries” into plans • Fines for getting it wrong • What to do next for new plans • What to do next for existing plans 16

18. Pre 6 April 2014 Prior to the launch of a CSOP, SAYE or SIP pre 6 April 2014: • Plan rules • Employee guides / communications • Employee application materials • SIP trust deed Post launch of a CSOP, SAYE or SIP pre 6 April 2014: • Amendments to “key features” • Adjustment to awards in connection with a variation of share capital • Basis for “rolling over” awards on a takeover All needed pre-clearance / agreement with HMRC towards formal confirmation of the plan’s tax approved status All needed pre-clearance / agreement with HMRC to maintain tax approved status 17

19. From 6 April 2014 Prior to the launch of a new CSOP, SAYE or SIP from 6 April 2014: • Plan rules • Employee guides / communications • Employee application materials • SIP trust deed Operation of a CSOP, SAYE or SIP (including existing) from 6 April 2014: • Amendments to “key features” • Adjustment to awards in connection with a variation of share capital • Basis for “rolling over” awards on a takeover No pre-clearance required from HMRC No pre-clearance required from HMRC in relation to amendments to key features May not need pre-clearance / agreement 18

20. Self certification for tax approved status • No more pre-clearance – wholesale change to a process of “self certification” • Self certification deadlines for new or not yet used CSOPs, SAYE and SIP: • The plan must be registered (as discussed by John earlier) • Notice from company to HMRC by no later than the “initial notification deadline” being 6 July of the tax year following the tax year in which the plan is first used • The notice can be made before or after the first award • Notice (in HMRC prescribed form) to include a declaration by the company that • the plan meets the requirements of the relevant Schedule of ITEPA; and • if notice is being made following the first award, that the plan met such requirements in relation to such award and since such time 19

21. Self certification for tax approved status • Self certification for existing and previously active CSOPs, SAYE and SIP: • The plan must be registered (as discussed by John earlier) • Notice from company to HMRC by no later than the “initial notification” deadline of 6 July 2015 • Notice (in HMRC prescribed form) to include a declaration by the company that: • the plan meets the requirements of the relevant Schedule of ITEPA; and • has done so since 6 April 2014 20

22. Impact of missing the initial notification deadline • What happens if the “initial notification deadline” is missed? • Awards in the tax year that triggered the notification requirement will be non-tax favoured (+ impact on pre 6 April 2014 CSOP grants – next slide) • Subsequent awards will also be non-tax favoured unless notification is made by 6 July following the relevant tax year Example: Grants made in the 2014/15 tax year and in the 2015/16 tax year. The initial notification deadline is 6 July 2015. Notification is made late, say August 2015. Only the 2015/16 awards (and subsequent awards) will be capable of being tax favoured 21

23. Impact of missing the initial notification deadline • Impact of missing the “initial notification deadline” on pre 6 April 2014 awards: • No impact for SAYE and SIP awards (grandfathered) • All subsisting CSOP options as at 6 April 2014 lose tax favoured status! 22

24. Notifying plans to HMRC • How are plans notified to HMRC? • Completion of a on-line pro-forma “screen” form (which will be available after the plan has been registered for on-line annual returns) 23

25. Enquiries into plans by HMRC • General powers of enquiry following notification: • General power for HMRC to make enquiries in relation to a plan (for example, ask to see the plan documents) within 12 months of 7 July following the tax year in relation to which a valid registration was made 24

26. Enquiries into plans by HMRC • Overriding powers of enquiry following self certification: • HMRC may make enquiries in relation to a plan at any time if HMRC has reasonable grounds for believing the requirements of the relevant Schedule: • are not met in relation to the plan; or • have not been met in relation to the plan • Based on previewed draft HMRC guidance: Where a plan was approved prior to 6 April 2014, it is accepted that the plan met the relevant legislation at the time unless new information comes to light! 25

27. Notification of changes to plans / variation of capital • As part of a future year’s Annual Return process, if during the tax year: • there is any alteration is made to a “key feature”; or • there has been any variation of share capital, then: • company required to make a declaration that the alteration or variation (as relevant) has not caused the requirements of the relevant ITEPA Schedule not to be met 26

28. Fines for getting it wrong – serious errors! • Fines if HMRC decides a plan is non compliant (HMRC decides, but can be appealed): • Fine depends on whether the error is: • serious error; or • less serious 27

29. Fines for getting it wrong – serious errors! • If HMRC decides a plan is non compliant (HMRC decides, but can be appealed): • If a “serious error”: • the tax advantaged status of the plan may be withdrawn as to future grants (normally from the time the plan ceased to meet the requirements); and • a penalty may be applied of up to twice the amount of tax and NICs relief already given to participants in the plan up to the date on which the tax advantaged status is withdrawn and the tax relief that will be given after that date to those whose status is protected 28

30. Fines for getting it wrong – serious errors! • What is a serious error??? • Not defined, but draft HMRC guidance gives the following example: • a fundamental or material error in the plan rules than cannot be put right by either amending or repairing the rules • for example: • the shares never qualified • the employer was never eligible to establish a qualifying plan 29

31. Fines for getting it wrong – less serious errors. • If HMRC decides the plans are non compliant (HMRC decides, but can be appealed): • If a “less serious error*” (still serious): • if the employer repairs or corrects the error within the 90 days, the plan retains its tax advantaged status • the employer may however incur a penalty of up to £5,000 • when calculating the amount of the penalty, HMRC will make judgments about the nature of errors on a case by case basis taking into account a range of factors including (but not limited to) the numbers and types of shareholders involved, the amount of tax involved and the circumstances that caused the error * Draft guidance: an error that can be put right by amending or repairing the plan rules, for example where the error relates to the interaction of the plan rules 30

32. The meaning of “plan” – not just the plan rules • All turns on a declaration that a plan meets the requirements of the relevant ITEPA Schedule – But what does “plan” mean for these purposes? • Based on previewed draft HMRC guidance, the following are considered to be part of the plan: • the plan rules (and deed where relevant) and the ancillary documents to be used in operating them • the provisions in the company's Articles of Association which regulate the shares and therefore affect the operation of the plan • the terms of any shareholder agreements to which shares acquired under the scheme may be subject • any arrangements made between the plan operators (including administrators) and the plan participants • any invitation documents (e.g. SAYE and SIP) 31

33. What next? • For new plans: • The advisers drafting the plan documents should “sign off” that their drafting meets the requirements of the relevant ITEPA schedule • HMRC recommends using its old formal approval checklists! • Care needed to ensure that the operation of the plan matches the requirements of the rules and schedules (for example, basis of setting option prices) 32

34. What next? • For existing plans: • HMRC signed off the original plan documents (and any amendments) - so should be ok ????? • Based on recent Q&A with HMRC they strongly hinted this would be the case until any change to a key feature • However: • not yet formally confirmed or law. Watch this space • presumably would only relate to the written documents and not the operation of the plan • a “health check” of the operation of the plan is recommended • what happens post change of a key feature? • need to bring the rules fully in line with the new legislation and current HMRC views (for example: leaver treatment)? 33

35. Any questions? 34

36. Finance Bill 2014 Changes to Tax-Advantaged PlansMatthew Ward / John Franklin – New Bridge Street

37. Two years of major change • Recap of changes under the Finance Act 2013 • Some proposed measures under the Finance Bill 2014 • Practical implications of the changes to your plans

38. What changed last year?

39. Increase to Sharesave and SIP limits • Sharesave savings limit increased from £250 to £500 • SIP partnership share limit increased from £1,500 to £1,800 • SIP free shares limit increased from £3,000 to £3,600 • Increases effective on 6 April 2014 • If plan rules refer to numerical limit, then may require amending • Partnership share agreement and free share agreements may also require amending

40. HMRC approval for new plans and changes to ‘key features’ no longer required (effective 6 April 2014) BUT still areas where HMRC approval is required – e.g. market value of shares on an exchange of options Plan rules may be read as if references to HMRC approval have been removed but you may wish to update to avoid confusion/errors HMRC formal approvals process abolished 39

41. Requirements for CSOP options • CSOP options must meet new conditions at grant • Applies to options granted on or after 6 April 2014 • The following information must be stated at the time of grant and notified to participants as soon as practicable after grant: - exercise price; - number and description of shares; - any restrictions applying to the shares; - exercise periods applying to the option ('normal' exercise, good leavers, change of control) - circumstances in which the option will lapse or be cancelled - any conditions applying to the option

42. Requirements for CSOP options Amendment of options post-grant now restricted to adjustments following a variation of share capital or by way of a mechanism stated on grant (e.g. amendment to performance conditions, time pro-rating) Mechanism must be applied fairly and reasonably Plan rules may need to be amended to reflect the new requirements. Option certificates/communications may also need to be amended 41

43. Changes common to CSOP and Sharesave

44. Final thoughts… Amend your plan rules to incorporate automatic changes to avoid confusion or errors Some amendments required to obtain tax relief Updated rules will assist when you come to self-certifying your plan 43

45. Any questions? 44

46. Matthew Ward  |  Associate Partner New Bridge Street  |  Consulting 10 Devonshire Square  |  London  |  EC2M 4YP t  +44(0) 20 7086 9346  |  m  +44(0) 7810 794 244 matthew.ward@aonhewitt.com www.nbs-implementation.com John Franklin | Senior Consultant New Bridge Street  |  Consulting 10 Devonshire Square  |  London  |  EC2M 4YP t  +44 (0)20 7086 9104   |  m  +44 (0)777 720 885  john.franklin@aonhewitt.com www.nbs-implementation.com