Company Share Schemes and their associated tax treatment have been highlighted to Economic Development as an opportunity for improvement. Their consultation aims to understand how companies currently use share schemes and gather feedback on introducing a new scheme designed for start-ups and growing businesses.
The consultation will close on the 7th February 2025.
You can either respond directly to Economic Development at keith.wilen2@gov.gg or to Chamber on hello@guernseychamber.com and we will collate the responses.
Company Share Schemes
There are two existing routes to award share incentives – these are, to award shares directly or to award share options which allow employees to buy shares at a pre-determined price in the future. Either form of share incentive is considered to be an important tool for businesses to grow and develop by providing this benefit.
The Revenue Service’s Statement of Practice E431 details that the tax liability for both Share Award Schemes and Share Option Schemes is the same, with the taxable amount treated as a benefit in kind. The tax liability is calculated on either the value of the share discount received, or the full share or option value (if granted at no cost). The tax payment is due at the point of the award or when the option is granted (though in some qualifying situations, deferral of the payment for up to 3 years is given on application to the Revenue Service). In the absence of deferral, this means that Revenue Service currently treats an award of shares / share options as having an immediate tax liability even though the value of those shares / options may never be realised by the employee.
Impact on Employees
The distinction between share schemes and share option schemes is important because there is a significant difference in when the value and rights can be realised by the employee. In the case of share option schemes, such value may never be realised. Furthermore, if the business ceases trading, which is typical of early-stage businesses, in some situations (for example after 6 years) the employee may not be able to get any refunds for tax already paid on the value of options given if they do not have the relevant confirmation from the business. This approach could be considered a barrier for early-stage businesses that want to use share options schemes to reward employees and grow and succeed.
1 Statements of Practice – https://gov.gg/CHttpHandler.ashx?id=92909&p=0
Consultation Questions
Use of Existing Company Share Schemes
1. Does your company/organisation/clients make use of company share schemes?
2. If yes, what are your main reasons for offering share schemes?
3. If no, what are your main reasons for not offering share schemes?
4. Which type of share scheme does the company use?
a. Share Awards
b. Share Options
5. What type of employee conditions does the company attach to share schemes?
Tax Treatment of Existing Share Schemes
6. Does the company offer any special arrangements to help employees manage their tax liability when receiving shares/share options?
New Share Schemes
Economic Development is investigating the introduction of an additional share scheme which would target new and developing businesses. The tax liability would continue to be calculated at the point when the shares / options were issued but the tax payment would be delayed until either the date the shares vest unconditionally or when the options are exercised. Both would be subject to a maximum deferral period of ten years. This scheme would differ from the existing share schemes by ensuring that the tax liability is payable when the value of shares realised – such as at the point of exercising an option to buy the shares, or once the vesting period has passed.
Further Questions
7. Would an extended tax payment date increase the likelihood of offering share awards/options to your employees?
8. Do you foresee any complications with providing this type of scheme?
Any additional comments concerning this topic are also welcome.
