The penalties for non-compliance with the rules on tax liability for employee tax advantaged share schemes have been updated
HMRC will charge a penalty in the event of a HMRC compliance check. Schemes liable for penalties are Share Incentive Plan (SIP), Save As You Earn option scheme (SAYE), Company Share Option Plan (CSOP) and Enterprise Management Incentives (EMI).
Less serious errors start with the maximum amount which is either £5,000 or the total amount of tax and NIC relief given or due.
The penalty is reduced by 100% for unprompted disclosures, 50% for prompted disclosures and the penalty remains at the maximum in the case of no disclosure.
The penalty amount depends on the severity of the error, whether it is considered ‘serious’ or ‘less serious’. A ‘serious’ error counts as ‘a fundamental or material error in the plan rules or in the way in which the plan is operated’. A ‘less serious’ error is ‘an error that can be put right by amending or repairing the plan rules’.
Serious errors are charged as a percentage on the tax and National Insurance Contributions (NICs) relief given or due on options granted to employees. HMRC are able to charge twice the amount.
A minimum penalty will be applied and this is calculated on the basis of whether the disclosure was prompted or unprompted.
It is the amount of total income tax and NICs that HMRC estimates would have been payable if the scheme had not been operated in a tax advantaged way.
An unprompted disclose is if HMRC and told about an error before they investigate. A prompted disclosure occurs if HMRC is informed at any other time.
The disclosure reduction for unprompted disclosures is that the maximum penalty will be reduced to 100% of the total tax and NICs that would have been made payable. For prompted disclosure the reduction is increased to 150% and if no disclosure is made the penalty remains at the maximum.
In the case of a less serious error, it can be corrected within 90 days of either the end of the period during which an appeal can be made against the decision that the error is ‘less serious’ or the date on which any appeal against the decision is determined or withdrawn.
Failure to do so could result in a further penalty.
Furthur information on share scheme penalties is here.
