New HMRC share plan guidance: what do you need to tell your employees?
As more employees are drawn into personal tax reporting, how can employers prevent the value of employee share plans being eroded?
As more employees are drawn into personal tax reporting, how can employers prevent the
What you need to know
Following successive reductions in the 2023/24 and 2024/25 tax years, the annual dividend allowance is now £500 (down from £2,000) and capital gains tax (CGT) allowance is currently £3,000 (down from £12,300). This means that an increasing number of employees will need to report and pay tax on dividends and capital gains associated with shares acquired through employee share plans.
HMRC have published new employee guidance focussed on making sure that employees comply with what, for many, will be new and unfamiliar personal tax reporting obligations.
Why does this matter to employers?
Many employees, particularly those in ‘all employee’ plans such as Save-As-You-Earn (SAYE or ‘sharesave’), won’t have personally reported and paid taxes related to their share plan participation before (as any dividends and capital gains were below the previously higher annual allowances).
Now having to deal with personal reporting obligations because gains on share sales and/or dividends received exceed the new tax reporting thresholds might feel daunting. Many employees could therefore turn to their employer’s payroll, reward, and HR teams for guidance.
Additionally, being required to pay tax on what was previously a tax-free benefit could reduce the value that employees place on their share plan participation. This could affect the share plans’ incentive effect, and so reduce the return on investment the employer receives for operating the plan.
What should employers do?
Often the employer’s investment in employee share plans is huge. There can be a real business impact if the value of this is undermined because employees find the time and effort required to understand their personal obligations onerous, or even worse, if they fail to be compliant and face adverse HMRC scrutiny.
Although the new HMRC guidance is intended to be easy for taxpayers to understand, it’s generic and, in our experience, employees much prefer to receive an employer communication tailored to the company and the share plan in question. Employers should therefore review their share plan communications to ensure these clearly outline employees’ personal tax obligations and confirm the information and support that the employer is able to offer.
Employees of overseas headquartered groups might need additional guidance from their employer where overseas withholding tax on dividends can be claimed back or offset against a UK tax liability.
Employers could also consider whether their share plan offering could be changed to minimise employees’ potential tax exposures. For example, introducing or increasing certain share awards under a tax-advantaged Share Incentive Plan (SIP) could let employees reinvest dividends income tax free and sell shares without any CGT liability – notwithstanding the reduced tax-free allowances. This is just one change employers might consider.
How can KPMG help?
Please get in touch with your usual KPMG in the UK contact, or one of the contacts listed below, to talk through how KPMG in the UK can help you maximise the value your employee share plans deliver for your workforce and your business.
