Weekly Tax Update - Monday 2 July 2012

1. PAYE AND EMPLOYMENT MATTERS

   1.1. Consultation on OTS's recommendations on share schemes

   The Government has launched a consultation on 15 of the Office of Tax Simplification's (OTS) recommendations on share schemes (for comment by 18 September 2012). The OTS made three main recommendations are:

   introduce a self certification process for the SIP, SAYE and CSOP schemes; undertake further investigation into whether the CSOP scheme is still relevant for UK businesses; and if CSOP is found to still be of relevance, merge the EMI and CSOP schemes. Of these main recommendations, the Government has accepted that self certification should be explored further for SIP, SAYE and CSOP schemes. In addition, there is a request for further views and evidence on a number of the OTS's other recommendations on share schemes. It will investigate the current relevance of the CSOP scheme, but is not at this time consulting on the OTS's proposal that EMI and CSOP be merged. However it will accept new economic evidence on how the schemes are currently used and the tax influence on that use.

   With respect to self certification there is concern to protect both the employer and the exchequer. As the tax benefit of these schemes is principally for the employees, one concern is that if it turns out that a scheme should be wound up as a result of failure to comply with the rules, there would need to be an effective mechanism for recouping any incorrectly granted tax benefits. There are other administrative simplifications on communication of scheme terms and the way the current rules are phrased, on which responses are requested.

   Of the OTS's 23 other recommendations, further views and evidence are requested on twelve, covering:

   provisions concerning retirement for SIP, SAYE and CSOP; cash takeovers; uncapped PAYE and NICs liability on cash takeovers (SIP); SIP, SAYE and CSOP material interest rules; restrictions on shares that can be used in SIP, SAYE and CSOP; removal of redundant legislation for SIP; the accumulation period for SIP partnership shares; the operation of PAYE for SIP shares that leave a plan early; SIP dividend reinvestment; SAYE savings periods; the rules on non PAYE contributions under SAYE; and the exercise period for EMI share options following a disqualifying event. In addition there is a request for views and evidence concerning the harmonisation and rephrasing of 'good leaver' provisions.

   A response to the consultation will be published in autumn 2012 and any change on self certification will be developed for implementation no later than 2014. Where a decision is made to proceed with a recommendation on one of the twelve other areas considered and the good leaver provisions, further details and any draft legislation will be published in autumn 2012. The response will also announce a decision on how to proceed with the outcome of the investigation of the relevance of CSOP arrangements.

   http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&propertyType=document&columns=1&id=HMCE_PROD1_032132

   1.2. Financial Reporting Committee to consult on executive remuneration

   The Financial Reporting Council (FRC) has announced that it will consult on whether to amend the UK Corporate Governance Code to address a number of issues relating to executive remuneration. The consultation will be carried out after the Government's legislation on voting and reporting on executive remuneration has been finalised.

   The FRC will consult on two proposals that the Government has asked it to consider: to extend the Code's existing provisions on claw-back arrangements, and to limit the practice of executive directors sitting on the remuneration committees of other companies.

   It will also seek views on whether companies should engage with shareholders and report to the market in the event that they fail to obtain at least a substantial majority in support of a resolution on remuneration.

   www.frc.org.uk/press/pub2806.html

   1.3. EC regulations affecting social security obligations in cross border situations

   The European Commission has released updated regulations on the payment of social security contributions. This changes the home base rule used to determine to which member state the employee and employer should pay national insurance contributions. Transitional arrangements and a special exemption are also discussed.

   The new rules came into force on 28 June 2012 and relate to the payment of Social Security contributions for some airlines and aircrew. Social Security contributions co-ordination rules are contained in EC Regulation 883/2004 which determine where and when National Insurance contributions have to be paid.

   A new Home Base regulation has been introduced in EC Regulation 465/2012 to determine which member state aircrew and their employers will pay contributions to. Currently most aircrew pay contributions to the member state they live in if they perform a substantial (25% or more) of their activities there or if not then to the state where their employer is based.

   Under the new Home Base rule, aircrew and their employer will now pay contributions to the member state where the Home Base is situated. This will normally be where the crew member lives.

   Transitional arrangements

   Delayed Change of State: If under the new rules, the state a crew member is paying contributions to would change, then they can elect to pay the original state for a transitional period of up to 10 years, unless there is a change of material circumstances.

   Immediate Change of State: Crew members can ask that the new rule be applied to them immediately.

   For crew members that frequently change their home base, their employer can apply for a special agreement to keep the employee's home base in a single state.

   http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:149:0004:0010:EN:PDF

   1.4. HMRC Q&A on making share based payments to an employee after they have left

   HMRC has issued revised guidance for employers providing share-based payments to former employees. This guidance is in the form of questions and answers and takes precedence over the previous version. However HMRC acknowledge that some 2012/13 payments will already have been made or arranged according to the original guidance.

   www.hmrc.gov.uk/thelibrary/tax-paye/share-payments.pdf

   1.5. NIC rules for those going to or coming from Norway, Iceland and Liechtenstein

   From 1 June 2012 the rules contained in EC Regulations 883/2004 and 987/2009 will apply to Norway, Iceland and Liechtenstein. These rules can affect the National Insurance contributions liabilities of employed and self employed people moving between EU Member States and these countries or in certain cross border situations.

   www.hmrc.gov.uk/news/news260612.htm

2. BUSINESS TAX

   2.1...