Part 7 Employee Share Schemes

October 2012 

31.5.169 Types of schemes

There are a number of share schemes operated by employers that can provide financial benefits with tax incentives for their employees.

Types of approved share scheme are-

Save as You Earn (SAYE) [Note 1] (see paragraph 31.5.170);

Share Incentive Plans (SIPs) [Note 2] (see paragraph 31.5.176);

Company Share Option Plans (CSOPs) [Note 3] (see paragraph 31.5.179);

Enterprise Management Initiatives (EMIs) [Note 4] (see paragraph 31.5.180).

Where an employee share scheme does not have HMRC approval it will not attract the tax advantages associated with the above scheme types.  Any shares already accumulated by the bankrupt at the date of the bankruptcy order will form part of the estate and will vest in the trustee.  However it should be noted that Income Tax and National Insurance may be payable if acquired shares are sold before the deadline set in the scheme’s terms.

 

31.5.170 Save as You Earn - General

Save as You Earn (SAYE) or Sharesave is a type of employee incentive scheme allowing employees to purchase a stake in the company they work for.  Employees of participating companies are able to make monthly payments (of up to £250 [Note 5]) direct from their salary into a fixed term savings contract [Note 6]. The monthly payment figure cannot be altered after a savings contract has started [Note 7].  When the savings contract reaches maturity (see paragraph 31.5.171) the balance can either be used to buy shares in the company or it will be remitted to the participant. 

A SAYE savings contract’s fixed term will be for either three or five years although funds in five year schemes can be left for an extra two years on the basis that no further monthly payments are required to be paid by the employee but a higher tax free bonus will be paid when the savings contract reaches its extended maturity date.

 

31.5.171 SAYE - Maturity

At the end of the fixed term of a savings contract, the contract is said to have reached maturity and the funds held in the contract attract a tax free bonus (which will be a multiple of the monthly savings figure).  The funds will then be available to the employee to either take as cash or use to buy shares in the company under an options which was set out when the employee entered the SAYE savings contract.  The option is a right to purchase a set number of shares at a set price within a set window of time.  The option exercise price is the price at which the employee can purchase the shares for, this price must be no lower than 80% [Note 8] of the market value of the shares at the time that the option was granted. The set period of time in which an employee has to exercise the option is given as a reference to the maturity date of the savings contract (e.g. within 6 months of maturity of the SAYE).  For the options available to the official receiver see paragraph 31.5.172.

 

31.5.172 SAYE – Realisation

A SAYE scheme can be brought to an end at any time however the amount of money you get back will depend upon how long ago the first payment was made under the contract- 

• If it was paid less than a year prior the only money due back is the money the participant has paid in [Note 9]. 
• If it was paid more than a year ago but less than five years ago the money paid in is repaid along with interest [Note 10]. 
• If it was paid between five and seven years ago the money paid in is repaid along with the five year tax free bonus and any interest due for the period over five years [Note 11].

 

31.5.173 Delay in realisation

The participant may have postponed the payments due under the scheme for a maximum of six months [Note 12].  Where this has happened the contract will be extended by the number of months that the payments had been postponed.  This will mean that the maturity date and therefore payment of any bonus would be delayed as well.  If the participant misses more than six payments the scheme will come to an end and the scheme will payout any funds due (see paragraph 31.5.172).

 

31.5.174 SAYE - Action to take

The official receiver should obtain details of the scheme and ask the scheme administrator to note the official receiver’s interest in the savings contract and share option.  The details required are the rate of interest due, maturity bonus payments and the scheme’s expected maturity date.  The Scheme terms should be checked to see if they contain a valid insolvency clause which would bring the scheme to an early conclusion.

The official receiver should use the information gathered to choose the course of action which will lead to the best return for creditors.  Where considering whether a scheme should be run to maturity the decision should be based upon the funds available at maturity fund value as opposed to speculating on the value of the shares if the option were to be exercised.  If the fund reaches maturity then the official may consider exercising the option (i.e. purchasing the shares) and simultaneously selling and then only if there is no risk to the estate.  This course of action should only be taken when there is a clear benefit to the estate after the costs of carrying out such a transaction are considered.

 

31.5.175 Share Incentive Plan - General

A Share Incentive Plan (SIP) [Note 13] is a scheme designed to give employees tax advantages for acquiring shares in the company they work for.  An employer running a SIP scheme can offer a number of different types of shares under the plan, these are- 

• free shares are shares that the employer gives to the employee.  The maximum number of shares that an employer can give to an employee under a SIP scheme is £3,000 in any one tax year [Note 14]; 
• partnership shares are shares that the employee can purchase themselves under the plan.  The maximum amount that an employee can spend on partnership shares in a given tax year is the lower of 10% of their gross pay or £1,500.  Partnership shares are paid for from an employee’s gross pay [Note 12]; 
• matching shares are shares that an employer is entitled to give away under a SIP plan as an incentive or employees to purchase partnership shares.  An employer can offer up to two free shares for every partnership share that the employee has purchased [Note 15]; 
• dividend shares are shares purchased with dividend monies due from shares held within a plan.  Only £1,500 worth of dividend shares can be reinvested in a SAYE scheme in any given tax year [Note 16].

 

31.5.176 SIP-period of plan

Shares held under the plan (except partnership shares) must be held in a trust for a period of between three and five (the employer can choose to run a plan with a trust period of up to  five years) [Note 17].  Partnership shares may be taken out of the plan at any time, however there will normally be some tax and national insurance to pay on them if they are removed within the first five years and if they are removed within the first three years the matched shares may be lost.

 

31.5.177 SIP – Action to take

The official receiver should write to the plan administrator and ask them to note the official receivers interest in the plan.  Details of the plan should be obtained, including- 

• The plan terms,
• A statement showing the holding in the plan.

The statement of the holding will show the total number of shares in the plan, give a breakdown by type of share (e.g. matching, partnership, dividend, free), and provide a breakdown by status of share (e.g. Locked in, Conditional, Available).  The locked in shares are ones that are held in trust and cannot be realised at present.  The conditional shares are ones that can be realised but there may be tax implications if they are.  Available shares are available to be realised free of tax and NI contributions.

 

31.5.178 SIPS – Which shares form part of the estate?

Any shares that the bankrupt was entitled to receive prior to the date of the bankruptcy order form part of the estate and would subsequently vest in the official receiver as trustee.  The plan terms would outline why the bankrupt was entitled to receive shares.  If the conditions were to be met again before the bankrupt was discharged from bankruptcy they would have an obligation to inform the official receiver so that he/she may consider claiming the shares as after-acquired property (see paragraph 31.8.14).  In a situation where the bankrupt was entitled to receive shares because he/she had completed a year of service from the 1 April 2012 to 31 March 2013, the shares may be awarded in June 2013 however if the bankrupt was entitled to receive the shares on the 31 March 2013 that would be the relevant date when considering a claim for after-acquired property.

 

31.5.179 Company Share Option Plans (CSOPs)

A Company Share Option Plan (CSOP) is a tax efficient way of giving employees a chance to purchase shares in the company that they work for at a pre agreed price. The shares must be ordinary share and the exercise price cannot be manifestly lower than the market value of the shares [Note 18].  The scheme will set the number of shares that may be acquired by the participant.  Unlike a SIP or a SAYE scheme a CSOP can be open to ‘selected’ employees or directors rather than having to be open to all employees, although it can be offered on an all employee basis if the company wishes.  An employee/director may hold a maximum of £30,000 worth of options under a CSOP [Note 19].

The benefits of a CSOP scheme are that any increase in value of the shares acquired (regardless of whether the acquired shares are subsequently sold) will not be chargeable in relation to Income Tax and National Insurance provided that the shares are acquired more than three years after the date the option was granted (save for limited exceptions e.g. acquired due to the retirement or redundancy of the participant).  The purchase of shares within a CSOP scheme will however be assessable for Capital Gains Tax purposes.    

 

31.5.180 Enterprise Management Incentives (EMIs)

Enterprise Management Incentives (EMIs) are tax efficient employee benefit schemes that are available to small companies (companies with gross assets below £30 million) which carry out certain trades that are not excluded under Schedule 5 of the Income Tax (Pensions and Earnings) Act 2003 [Note 20].  They are designed to attract and retain skilled employees for these higher risk companies and reward participating employees for their input in assisting those companies to reach their potential.

EMIs operate as share options but the participant will not need to pay any Income Tax or National Insurance on any increase in value between the purchase price and the market price.  Capital Gains Tax will be assessable on any options exercised though.  A company is unable to make more than £3 million worth of shares available under EMI schemes [Note 21] and any eligible employee is only allowed to hold unexercised EMI and CSOP options covering £250,000 worth of shares (the value being the market value as at the date of the grant) [Note 22].  An employee will be unable to receive any further EMI grants within three years of a previous grant, this is regardless of whether that grant was realised/exercised [Note 23].

 

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