How would you make ‘all employee’ share plans better?

The Treasury seeks views on how tax-advantaged ‘all employee’ share plans might be improved or simplified – it’s your chance to have a say

‘All employee’ share plan consultation

The Treasury has issued a call for evidence on tax-advantaged Save-As-You-Earn (SAYE or ‘sharesave’) and Share Incentive Plan (SIP) employee share plans. This seeks evidence on how employers currently use SAYE and SIP plans, whether they achieve their policy aims, and whether any improvements or simplifications could increase the number of employers who offer them and the number of employees – particularly lower earners – who participate. This call for evidence will interest employers who are considering how to widen employee share ownership (e.g. as part of their Environmental, Social and Governance strategy) and employers who currently offer SAYE and SIP as part of their Employee Value Proposition. This article summarises key points of the call for evidence and how employers can share their views with the Treasury. 

How SAYE plans and SIPs work

Both SAYE and SIP are ‘all employee’ plans in that all eligible employees must be invited to participate.

With SAYE, participants are granted options over shares and enter into three or five-year contracts to save up to £500 each month from post-tax salary. When the savings contract ends, employees can either use their savings to buy the option shares at their exercise price (which can be set at a discount of up to 20 percent of the shares’ market value on the grant date) or retain the cash.

No taxable income arises when SAYE options are exercised on or after the third anniversary of their grant date (or on earlier exercises in certain circumstances). Broadly, an employee’s Capital Gains Tax (CGT) liability when they sell SAYE shares is based on the difference between the disposal proceeds received and the option exercise price paid to acquire those shares.

With SIPs, (subject to certain limits) employees can purchase ‘partnership’ shares from pre-tax salary, be gifted ‘matching’ and/or ‘free’ shares (i.e. to match any ‘partnership’ shares purchased or as stand-alone awards), and reinvest dividends paid on SIP shares. Shares are held by a UK trustee on behalf of participants for as long as they remain within the SIP.

The salary used to acquire partnership shares, and the value of any matching and/or free shares received, is free of income tax, NIC and Apprenticeship Levy provided those shares are retained within the SIP for at least five years. Reinvested dividends are also income tax free provided the shares acquired are held within the SIP for at least three years. However, income tax and social security relief may be ‘clawed back’ in whole or in part if shares are removed from a SIP within these time periods. Any growth in the value of shares held within a SIP trust will be CGT free, so no CGT should be payable if shares are retained in a SIP trust until they are sold.

What does the call for evidence consider?

The Government’s call for evidence wishes to understand how employers currently use SAYE plans and SIPs, and whether those plans effectively align employees’ and shareholders’ interests by encouraging wider employee share ownership, and also encourage employees to save and invest.

The Government will also consider whether there are any opportunities to improve and simplify the SAYE and SIP regimes.

Specific areas considered by the call for evidence include:

  • Whether there are barriers to participation;
  • Whether the SAYE and SIP regimes are simple and clear;
  • Whether the regimes offer sufficient flexibility for individual employers’ commercial needs; and
  • Whether SAYE and SIP appropriately encourage share ownership for lower earners.

Why should employers consider responding?

This new call for evidence follows the Treasury’s earlier consultation on tax-advantaged Enterprise Management Incentives (EMI), which led to significant enhancements to tax-advantaged Company Share Option Plans (CSOP), as well as simplifications to the EMI regime.

This consultation therefore has the potential to drive real improvements to how ‘all employee’ tax-advantaged share plans widen employee ownership, by delivering for businesses and employees.

For employers who currently offer a SAYE plan or SIP, this is an opportunity to highlight where these plans could be made more flexible, and administrative ‘grit’ removed from the system, to make them easier for employers to operate and increase employee participation.

For employers who are considering whether to adopt one or both of these plans, the call for evidence allows representations to be made on how barriers to implementation could be lowered and these plans made more attractive.

It’s also an opportunity to make representations to the Government on where improvements could be made to show how the SAYE and SIP regimes interact with other parts of the tax code (e.g. how recent changes to the CGT annual exemption have the potential to affect SAYE participants).

What happens next?

This call for evidence closes on 25 August 2023. Please contact the authors, or your usual KPMG in the UK contact, if you would like to talk through what this call for evidence might mean for you, or how an SAYE plan or SIP could benefit your business and your workforce. Please also reach out to the authors or your usual contact if there are any points you would like us to consider reflecting in any submissions that we make to HM Treasury. Employers can also submit a response to the call for evidence by completing the Treasury’s online survey.