Employee Incentives Update - Autumn 2017
Published on 16th Oct 2017
Welcome to our Employee Incentives Update for Autumn 2017.
This edition covers:
- corporate governance reform – the government’s response to the green paper and the BEIS Committee report;
- a reminder from HMRC about registering share plans correctly;
- the Rangers case and HMRC settlement opportunity;
- employment developments – the Taylor review of working practices and gender pay; and
- some recent international developments, including from France and Belgium.
We hope that you find it interesting. If you would like to discuss any aspect, please let us know. Our contact details are set out below.
Corporate governance | proposals for reform of executive pay
On 29 August 2017, the government published its response to the green paper consultation on corporate governance reform, setting out measures which are intended to “improve corporate governance and give workers and investors a stronger voice.” Separately, on 22 September 2017, the Business, Energy and Industrial Strategy Committee published the government’s response to its third report on corporate governance.
Seminar
We will be hosting our annual seminar, “Corporate Governance: a view from the investors and current issues” in London on 21 November 2017. We will be joined by our guest speakers, Rupert Krefting, Head of Corporate Finance and Stewardship at M&G Investments and Paul Lee, Head of Corporate Governance at Aberdeen Standard Investments.
For more information and to register, click here.
Online registration of share plans
On 25 September 2017, HMRC published Employment Related Securities Bulletin No 25.
This provides information on common errors which some companies are making in registering their share plans and employment related security arrangements online with HMRC using the ERS service.
HMRC is finding that many new registrations are showing an incorrect scheme type. Companies should take care when registering their share plans, to ensure that the correct scheme type is selected. Each of the plans which are intended to qualify for tax-advantages (namely, enterprise management incentives, company share option plans, share incentive plans and SAYE plans) has its own scheme type and must be registered under the appropriate type. The “Other” scheme type is for non-tax advantaged arrangements.
The Bulletin also provides instructions on how to cease an incorrectly registered scheme.
Although registration of plans is an administrative task for companies operating employment-related security arrangements, it is important that it is not overlooked and is completed correctly – otherwise penalties and potentially loss of tax-relief will apply.
The Rangers case and HMRC settlement opportunity
The Supreme Court handed down its decision in the long-running Rangers EBT case, dismissing RFC’s appeal. It agreed with HMRC’s view that there had been a payment of earnings to the footballers and executives of RFC, and RFC should have deducted income tax and NICs from the sums paid to the EBT.
On 29 September 2017, HMRC published Spotlight 41 “Disguised Remuneration: a Supreme Court decision” expanding its list of tax avoidance schemes.
Employment developments
Matthew Taylor’s much anticipated review of Modern Working Practices was published in the summer – see our summary of its key recommendations to the government.
Gender pay continues to be in the spotlight, click here for our Insight on gender pay gap reporting.
International developments
France | what are the main modifications for incentive instruments included in the Draft Finance Act for 2018?
The newly appointed French Government, in place since the presidential and legislative elections which took place in the Spring, published its first draft of the Finance Act on 27 September 2017.
Belgium | expatriates special tax regime: tax-free rent allowance
A recent decision of the Court of Brussels may be of interest to expatriates who host representational business activities on behalf of their employer at their home. If the expatriate can produce proof of such a specific expense, the part of the allowance granted to rent a larger home (in order to host such activities) would be tax free.
Belgium/The Netherlands | 183-days rule
The Dutch Supreme Court ruled recently in a Belgium-Netherlands case on residency. For the calculation of the 183-days rule, the days to be considered should be limited to days with activity actually carried out in the state of activity, and other presence days that are related in any way to the activities.However, it seems that the Dutch Supreme Court is not entirely in line with OECD commentaries. The Court added a condition of a presence in connection with the activities, when the current version of the OECD commentaries would consider any day of presence, including for example holidays spent within a 12 month period but after the activity has come to an end.
The 183-days rule has previously been subject to discussions in cases between Belgium and the The Netherlands, which led to international talks between Belgium and the The Netherlands on another point relating to the 183-days rule (which income would be subject to tax in the activity country under the 183-days rule: the income related to the days worked in the activity country during the 12 month period, or the income earned there relating to the entire taxable periods. The outcome was in line with the OECD interpretation: the income is limited to days during the 12 month period concerned, being a general interpretation rule in Belgium and in The Netherlands for tax treaties concluded by these countries.
Ireland | new tax incentive for share-based remuneration announced for SMEs
In Ireland, Budget 2018 was announced on 10 October 2017. The Minister for Finance announced in his budget speech that a new incentive is to be introduced to facilitate the use of share-based remuneration by unquoted small and medium enterprise companies. To be known as the Key Employee Engagement Programme (“KEEP”), gains arising on the exercise of KEEP options will be liable to capital gains tax on disposal of the shares (rather than income tax, universal social charge and pay-related social insurance on exercise, as is the case currently). The new incentive will be available for qualifying options granted between 1 January 2018 and 31 December 2023.
On the horizon
In the UK:
- The proposed changes to the taxation of termination payments have been reintroduced to parliament in the recently published Finance Bill (they were withdrawn from the Finance Act 2017 in the light of the general election). The measures are intended to come into force on 6 April 2018. The proposed new rules will remove the current distinction between contractual and non-contractual PILON clauses, to treat both as fully taxable earnings (subject to income tax, employer’s and employee’s NICs); and employer’s NICs will be payable on other termination payments above the £30,000 limit. Employers will need to factor the changes into any settlement negotiations where payments may be made on or after 6 April 2018.
- Changes to the disguised remuneration rules (including the new charge on loans which remain outstanding on 5 April 2019) are included in the Finance Bill, and further technical clauses have been published for consultation.
