HMRC issues guidance on share scheme penalties

20th June 2016

In future, the penalties for non-compliance with HM Revenue and Customs (HMRC) rules on tax liability for employee share schemes will now be financial.

The tax authority has announced that they will now charge businesses for any compliance checks carried out on Share Incentive Plans (SIPs), Save As You Earn Option Schemes (SAYE), Company Share Option Plans (CSOP) and Enterprise Management Incentives (EMIs).

The maximum charge for carrying out the check is set at £5,000, or the total amount of tax and National Insurance Contributions (NIC) relief that is either given or due on the schemes.  The penalty will then be reduced by 100% for businesses that make unprompted disclosures, 50% for businesses that make prompted disclosures and then the maximum for any companies that don’t disclose at all.

HMRC will base the penalty amount on the severity of the error, choosing to define any mistakes as either ‘serious’ - a fundamental or material error in the planning rules - or ‘less serious’, which is an error that can be put right by either amending or repairing the rules of the plan.

Serious errors will be charged as a percentage on the tax and NIC relief and in this situation HMRC will be able to charge twice the amount. The minimum penalty applied will then be calculated according to the kind of error - prompted or unprompted - and will constitute the amount of total income tax and NICs that the tax body believe would have been owed had the business in question followed the appropriate tax procedure.

Businesses will have within 30 days to dispute the decision by sending new information to HMRC. They can appeal to have a case review by an HMRC officer not previously involved in the account or by arranging to have an appeal heard by an independent tribunal.

Businesses may also be able to ask for an HMRC specialist officer, who will then be able to act as a neutral facilitator in order to try and resolve any disputes. This process, known as Alternative Dispute Resolution (ADR), is strictly available for disputes regarding certain tax areas.

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