Finance Bill Tracking Service 2010 | Budget 2010

BN40 COMPANY SHARE OPTION PLANS: ANTI-AVOIDANCE

Who is likely to be affected?

1. Companies that use tax-advantaged Company Share Option Plans (CSOP) and individuals who are granted CSOP share options.

General description of the measure

2. Legislation will be introduced in Finance Bill 2010 to counter avoidance arrangements which are being used to circumvent the financial limit in CSOP. CSOP share options can no longer be granted over shares in a company which is under the control of a listed company.

Operative date

3. The measure will have effect in relation to options granted over shares in a company which is under the control of a listed company on or after 24 March 2010.

Current law and proposed revisions

4. Paragraph 17(1)(c) of Schedule 4 to the Income Tax (Earnings and (Pensions) Act 2003 (ITEPA) allows shares in a company which is under the control of a listed company to be shares to which an approved CSOP scheme could apply. Provided the requirements of the scheme are met, there will be no charge to income tax or National Insurance Contributions on the exercise of the options. Under CSOP, an individual can be awarded options over shares with a market value of up to £30,000 at the time of grant.

5. HM Revenue & Customs (HMRC) have found that arrangements are being used which fall under the general description of "geared growth" and which can be used to deliver additional reward to employees, beyond that intended under the schemes. This avoidance involves share options granted over shares in companies which are under the control of a listed company.

6. This measure will counter this avoidance by restricting the type of shares which can be used in CSOP. Paragraph 17(1)(c) of Schedule 4 to ITEPA will be amended so that shares in a company which is under the control of a listed company will no longer be shares to which an approved CSOP scheme could apply.

7. The measure allows companies a transitional period of six months to amend their scheme rules to bring them into line with this change, if an amendment is necessary.

Further advice

8. Draft legislation and an explanatory note have been published today on the HMRC website.

9. If you have any questions about this change, please contact Chris Murricane on 020 7147 2818 (email: shareschemes@hmrc.gsi.gov.uk). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk