The taxation of ‘Unapproved’ employee share schemes need significant reform according to the Office of Tax Simplification (OTS).

Following a one year review, the OTS makes the following key recommendations in a report published today:

  • Create a “marketable” security: instead of employees being taxed on the value of shares before they can sell them, the OTS recommend that employees are given the option of whether to pay tax on acquisition, or when the security can be sold for cash.
  • Alignment of tax for international assignees: to help those companies with international employees, the OTS recommend aligning the tax treatment of international assignees with the tax on other general earnings.
  • Creation of an employee shareholding vehicle: to encourage wider employee ownership, the OTS recommends an introduction of a vehicle to enable companies to better manage their employee share arrangements.
  • Simpler valuation of shares: to address the confusion and uncertainty with valuation, the OTS recommends increasing the availability of pre-transaction valuations, better provision of valuation information, and more flexibility for companies on non-recognised stock exchanges.
  • Administrative simplification: the OTS recommends simplifying PAYE deadlines and the main annual report, the Form 42.  

John Whiting, Tax Director for the Office of Tax Simplification said:

“The current share schemes tax legislation is a tangle of complexity. It creates costs and pitfalls for companies and employees, and significant burdens for HMRC.

“We have spent a lot of time talking to the people that use the schemes, and found that whilst employers saw real benefits of offering share-based rewards, they had difficulties with managing the schemes within the tax rules. At the same time we have been very mindful of avoidance risks in this area. We think we have a balanced package of recommendations that will  simplify processes, increase fairness and encourage employers to offer these ownership options without creating new avoidance opportunities.”

During the review the OTS gathered evidence from meetings, surveys and road shows throughout the UK, giving employers, professional advisers, and representative bodies a chance to contribute to the review.

This final report with recommendations has been published on the website: