United Kingdom: Important Developments For Employee Share Schemes
Extension of UK Corporation Tax Relief
With effect from April 6, 2015, the statutory corporate tax deduction will be extended to cover situations where an individual works for a UK company but is contractually employed by an overseas company.
One of the conditions for a UK company to qualify for a statutory corporation tax deduction in respect to share acquisitions by individuals under a share incentive scheme is that the UK company must be the legal employer of the individual concerned at the relevant time. The relevant time for shares acquired on the exercise of options is the date of grant of the option while for most other share acquisitions, it is the date when the shares are acquired by the employee. Consequently, if an individual acquires shares while working for a UK company on a secondment from an overseas employer, no relief is available to the company in respect of those shares.
New position from April 6, 2015:
The UK host employer will be treated as the individual’s employer for the purposes of the relief and, subject to the other conditions being met, a corporation tax deduction will be given for the amount of the gain that is subject to UK income tax on exercise of options and other share acquisitions. This is a welcome change as it means that it will no longer be necessary to rely on specific tax planning measures to address this issue as, for example, putting in place a ‘recharge’ to support a tax deduction in the UK company under general principles and the measure aligns the treatment of a secondee’s share and non-share based remuneration.
New Personal Tax Position for Internationally Mobile Employees
New legislation will come into effect from 6th April, 2015 concerning the taxation of share options and restricted shares held by internationally mobile employees. Companies should make their mobile employees holding share options or restricted shares, aware of these changes as previously untaxed grants and awards may now be taxable.
An employee is taxed on the exercise of their option dependent upon their tax residence at the date of grant/award. If they are non-UK resident at grant/award and the grant was not made in respect of their forthcoming UK employment, then no income tax arises on exercise – even if they are UK resident at the time of the exercise. On the other hand, if an employee is resident at the time of the grant/award but later exercises once he has left the UK, he is still technically liable to UK income tax on any gain.
New position from April 6, 2015:
The current exclusion will be removed, with options and restricted shares held by an employee working in the UK during part of the relevant tax year may have income tax payable in the UK on vesting or exercise date. With regard to income tax and national insurance, any employment related share gain is apportioned on a time basis, with the part which relates to time spent in the UK being subject to income tax, and the part which relates to overseas duties being excluded from the income tax charge. The taxable amount is based on the growth in the share price from grant/award to the date of exercise or vesting.
We would recommend that current documentation is reviewed to establish whether there is a requirement to address this matter with your employees. Our share scheme experts can assist in this review.