Changes To Approved Share Schemes

The Finance Act 2013 made some key changes to approved share schemes (comprising share incentive plans ("SIPs"), save as you earn ("SAYE") share option schemes, company share option plans ("CSOPs") and enterprise management incentives ("EMIs")). Although many of the changes take effect without the need to amend the scheme rules, all rules should be reviewed to ensure that they are consistent with the new legislative changes.

1. SIP, SAYE and CSOP amendments

   Tax-favoured early exercise of options. Previously, legislative provisions setting out when shares could be delivered free of income tax and national insurance contributions ("NICs") before maturity of an award or option were inconsistent for SIPs, SAYE schemes and CSOPs.

   The Finance Act amendments harmonised the tax treatment on early exercise for these schemes (although the inclusion of the relevant provisions remain optional in CSOPs).

   Shares held in SIPs can be delivered and options under SAYE schemes and CSOPs can be exercised early free from income tax and NICs within six months of:

   a change of control of the employing company (provided that the employing company is not the company whose shares are the subject of the award or under option); an employee ceasing employment following a business (TUPE) transfer; and a cash takeover, provided certain conditions are met, including that the offer must not have permitted the employees to exchange their options for new options in the acquiring company. Material interest rules. Employees were not previously permitted to participate in approved share schemes if they had a "material interest" in the company. The Finance Act removed this restriction entirely for SAYE schemes and SIPs, and increased the material interest threshold from 25 percent to 30 percent for CSOPs (which is the same as the threshold for EMIs).

   Use of restricted shares. Generally, SIPs, SAYE schemes and CSOPs could not be used to deliver shares that were subject to restrictions. This limitation was removed in the Finance Act. Rather, schemes must disclose any relevant restrictions to participants, and whenever shares need to be valued (for example, to establish scheme limits), that calculation must be made on the basis that the shares are not subject to any restrictions.

   Exercise on retirement. The legislation allowed early leavers to remove their SIP shares or exercise their CSOP or SAYE options tax free on retirement. What amounted to "retirement" for the purposes of the...