Overview Many companies based in the US offer participation in their Employee Stock Purchase Plan (ESPP) to employees of their UK subsidiaries. But because these plans are non HM Revenue & Customs (HMRC) qualifying, they are not tax efficient for either the UK resident participant nor for the UK employer. US share purchase plans typically operate by enabling the employee to contribute a set amount each month out of net salary which is used to purchase stock at a discount. A UK resident participant will pay income tax and National Insurance Contributions (NIC) on this discount at the date they acquire the stock. The employing company will also suffer an employer NIC charge on such discounts. Employees are often forced to sell some of the shares to meet this liability. Through careful structuring, it is possible to replicate the tax efficiencies in the UK. Maximising the value for UK participants The ESPP experience could be delivered to UK employees using HMRC’s tax-advantaged Share Incentive Plan (SIP), replicating the US plan’s basic mechanism but with the potential for the participants to purchase their stock and to obtain their shares free of tax and NIC and also capital gains tax, and for companies to deliver stock free of employers NIC 13.8% (subject to statutory limits). Delivery of an ESPP as a SIP in the UK also means that the tax point is aligned with the US, i.e., at sale of stock (not acquisition) therefore encouraging retention of stock. Reflecting efforts to boost employee share ownership by the Government, in December 2013, legislative changes were announced to make SIP an even more attractive and flexible option, in particular:

Making Equity Work UK Tax Efficient ESPP


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