From 6 April 2014, the Government is increasing the maximum amounts which employees can receive under the two tax favoured all-employee share plans in the UK.
Share incentive plans
The amount of free shares which an employee can receive in a tax year is rising from £3,000 to £3,600. The amount of savings which an employee can make for partnership shares each year increases by the same proportion from £1,500 to £1,800 (or to £150 a month).
Matching share limits are expressed by reference to a 2:1 multiple of partnership shares and so this limit will rise on the same basis. Following changes earlier this year, there is now no longer any HMRC limit on the value of dividend shares, though companies are free to include a limit if they wish.
Save as you earn
The maximum monthly amount which can be saved will double from £250 to £500.
Consideration for companies
On the whole companies will welcome these changes, but there are some points to consider.
Will the changes automatically take effect for plans? This depends on scheme rules and employee documentation. Some plans just refer to HMRC limits from time to time as expressed in relevant legislation. Others have specific numerical limits included in them.
For the reasons given below, however, some companies may not want to take advantage of the changes in limits.
Will any consents be needed if scheme rules need to be changed? Most scheme rules will allow changes as a result of legislation changing limits to take effect without shareholder approval, but scheme rules need to be looked at on an individual basis. Because of separate changes being made to approved schemes which mean that HMRC approval of changes will no longer be necessary from 6 April 2014, HMRC approval is unlikely to be needed.
Will scheme literature/websites for employees need to be changed? Underlying systems will also need to be updated. Will companies with international plans need to make corresponding changes? It is possible that administrator charging levels might change too if there is a greater influx of savings.
The SAYE change will only affect new awards from 6 April 2014. Unlike with SIP awards, savings levels under existing SAYE awards cannot be changed. Companies may therefore wish to delay making SAYE awards until the new higher limit takes effect. SIP savings levels can normally be modified much more easily, but SIP free share awards may also be delayed into the next tax year to take advantage of the higher limit.
Dilution/number of shares receivable. The increase in the limits could produce challenges for companies if they result in employees applying to receive materially more shares. Do companies have enough unissued share capital available within their scheme limits or will they need to reserve the right to scale back applications?
If companies acquire the shares in the market and they allow the increases to follow through, they face up to a 40 per cent increase in the cost of the scheme and so they may wish to manage employees’ expectations quickly: while many employers currently award free shares at the maximum level, not all will want to continue doing so at the new level and matching on a 2:1 basis might also start being too expensive.
Companies will also need to start looking at employees’ rights under existing documentation as well as their expectations.
Nicholas Stretch is partner at CMS Cameron McKenna