22 July 2020

A recent decision of the Ghent Labour Court of Appeal has added support to the position taken by the National Social Security Office (NSSO) in 2018 that equity incentives offered by a foreign parent to participants in Belgium are always subject to social security contributions.

NSSO announcement in 2018 
In 2018, the NSSO issued an Administrative Instruction that Belgian social security contributions would now be due on all work related benefits, even where the local employer in Belgium does not provide the payment or grant the benefit. Prior to this announcement, the generally accepted position was that, for employee share plans offered by foreign companies, so long as there was no recharge by the parent company to the local employer, or no other ‘intervention’ by the local employer in the plan, social security was not due on the share plan income (see our newsletter here).

Court cases
Since 2018, the Belgian courts have twice upheld the position taken by the NSSO.  

Sisley case (May 2019)
In the first case,  the French cosmetics company Sisley paid commissions to employees of a Belgian company for the sale of Sisley products.  In upholding an earlier Appeal Court decision, the Supreme Court found that the commissions were a salary benefit paid to the employees as remuneration for work performed under an employment agreement with the Belgian employer.  The court held that social security was payable on the benefits and that it did not matter that the benefits were granted and paid for by a third party.

Esko case (July 2020)
The second case looked at the treatment of RSUs granted by Esko, a US company, to employees of it’s Belgian subsidiary. The court found that as the incentive plan documents stated that nothing in the plan created an employment contract between the Belgian employees and the US parent, the only avenue available for employees to raise any concerns over their entitlement under the plan was directly to the local employer.  The fact that the Belgian employer was also able to nominate participants for the incentive plan helped to reinforce the court’s view that there was a clear link between the employer and the plan. 

In both cases the court found that the benefit was subject to social security, whether because the benefit was paid to the employee as a consequence of work performed under an employment contract with the local employer (Sisley) or because there was clearly an involvement by the local employer (Esko).

Belgian social security rates
The impact of the extension of social security to share plan income is significant.  The current contribution rates are an average of 27.5% for employers and 13.07% for employees. There is no cap on the contributions and the employer must withhold the employee contribution.

Tapestry Comment
Although the Esko case could yet be appealed, the direction of traffic on this issue has all gone one way and it is increasingly unlikely that Belgian courts will find against the argument that income received by participants in Belgium under an incentive plan is subject to social security, even where the benefit is provided by the foreign parent.

The prudent advice following the NSSO announcement in 2018 was to withhold and pay social security and the  judicial support for the NSSO underscores that position.  The  introduction of a new tax withholding and reporting regime in March 2019, which subjects all share plan income to monthly reporting to the tax authority (see our newsletter here), puts additional stress on the need for compliance. To the extent that you have not already done so, companies should ensure that the social security implications have been discussed with local employers as well as employees.

If you have any questions regarding this newsletter or any other topics, or we can provide any further information about how these changes impact your share plans, please do contact us - we would be delighted to help!

Carla & Sharon

21 July 2020

In a strongly worded decision, the European Court of Justice (CJEU) has struck down the Privacy Shield data transfer arrangement between the EU and the US (here).
 
What is the Privacy Shield?
 
The Privacy Shield was put in place in 2016 to allow companies to transfer the personal data of EU citizens to the US without breaching the EU’s strict privacy rules (including the General Data Protection Regulation or GDPR).  These rules restrict the transfer of personal data from the EU to a country which does not provide privacy safeguards which are equivalent to the EU. The Privacy Shield set up a system which allowed companies lawfully to make transfers of data from the EU to the US, even though US privacy legislation falls below the EU equivalency threshold. The Privacy Shield replaced the earlier Safe Harbor arrangement which was itself quashed by the CJEU in October 2015.
 
Has Privacy Shield worked?

The Privacy Shield arrangement was welcomed by some business groups and, since 2016, more than 5,000 organisations have signed up to the Privacy Shield principles, including agreeing to oversight by US regulators.  But the arrangement was immediately the focus of European privacy pressure groups who argued that it failed to provide adequate protection for the personal data of EU citizens, in particular from US authorities. As a result, there was always a risk that the Privacy Shield would suffer the same fate as Safe Harbor.
 
The case against Privacy Shield

The question in the recent case before the CJEU was essentially whether a transfer of data from the EU to the US under the Privacy Shield gave EU citizens protection equivalent to that provided under EU law.  The CJEU also considered the validity of Standard Contractual Clauses (SCCs). SCCs are standard sets of contractual terms, drafted by the European Commission, which parties can use when transferring personal data outside the EU to a third country which does not satisfy the EU data protection equivalency requirement.  The argument against the use of the SCCs when transferring data to the US (in this instance by Facebook) was that the clauses do not provide adequate protection against access by US public authorities to the data.
 
The CJEU’s decision - Privacy Shield

The CJEU accepted the argument that the Privacy Shield did not set appropriate limits on access to individuals' data by the US authorities. The court found that under the Privacy Shield, the rights of US national security, public interest and law enforcement agencies took precedence (‘primacy’) over the privacy of individuals. It held that this was not proportionate as the right of the US authorities to access the data was not limited to what was ‘strictly necessary’. As a result, the court held that the Privacy Shield does not provide individuals with equivalent protections to those guaranteed under GDPR and EU law.
 
The CJEU’s decision - SCCs

On the question of the validity of SCCs, the CJEU held that it was not crucial that the SCCs do not bind the authorities in the third country to comply with the clauses. The obligation lies with the data exporter and the data recipient in the third country to include mechanisms in the contract to ensure compliance. If the protection clauses cannot be complied with, the transfer of the data must be suspended.
 
What do companies do now?

The collapse of Privacy Shield is a real concern for companies and other organisations which rely on the arrangement to transfer data between the EU and the US. Unless and until another agreement is reached between the EU and the US, companies will have to fall back on alternative mechanisms such as the SCCs or using regional data processing for EU employees.

Tapestry comment
It is difficult to see how this battle is going reach a satisfactory conclusion.  Despite some US states putting in place stricter privacy legislation, there does not seem to be any appetite at a national level for data privacy rules of the standard in force in the EU under GDPR. 

For companies operating share plans across the Atlantic, there is an obvious need to easily and lawfully transfer data on EU-based participants to the US. Many companies continue to rely on SCCs although the CJEU did stress that failure to satisfy the principles behind the SCCs could result in the clauses also failing. It will not be sufficient to simply insert SCCs in a contract - companies will be expected to do a proper risk assessment to ensure compliance with both the spirit and the letter of the clauses. 
 
Data protection is not a share plan specific issue, so companies and administrators transferring date from the EU to the US should discuss with the people who manage data privacy compliance in their organisations to check what approach they are taking with regards to data transfer arrangements for the business as a whole. 

If you need any advice on this or how data protection rules impact your share plans, please contact us.

Carla Walsham & Sharon Thwaites

17 July 2020

The consideration of restricted stock awards is gaining more momentum. These plans are relatively common below executive level and are now gaining more interest at board level. Notably, this week the shareholders of both BT and Burberry voted strongly in favour of restricted stock plans, which include executives, at their respective AGMs this week.
 
There has been support for alternative structures to common LTIP awards for some time now. In a COVID year, when investor pressures are forcing the consideration of total reward frameworks and it is increasingly difficult to set meaningful detailed performance conditions - will this be the year that more companies decide to use restricted stock?
 
Terminology
 
Firstly - let’s just think about what we mean by restricted stock. When you read the words “restricted stock” what does it mean to you? It’s important to know what award structure you are talking about. Different award types can have quite different treatments particularly from a legal and tax perspective.
 
For some the term restricted stock means upfront restricted shares - share ownership delivered on day one - subject to some restrictions perhaps on sale. Others would interpret these words to refer to forfeitable shares - share ownership again delivered on day one - perhaps subject to restrictions but also forfeitable. Meaning that the shares may be lost all together in certain circumstances - e.g. if performance targets are not met, or the employee leaves the company. More recently this term is used to refer to free share awards, that vest over a three-year (or longer) period, but that do not have complex performance targets. Instead, they have one or more general underpins such as company performance or shareholder returns’.
 
It is this latter award type that we are considering today, a conditional award, where ownership is not transferred until the vesting date and vesting is dependent on general underpins. You may also see the terms deferred shares and performance on grant awards being used (more on this below).
 
Background
 
In October 2019 the Purposeful Company produced a report on the use of deferred shares. The key findings report can be found here. The report provided widespread support for alternatives to LTIP structures. The report criticised LTIPs for being complex, allowing large pay-outs, and allowing pay-outs not necessarily linked to overall company performance. The report instead provides support for deferred shares to be held over the long term. Which they propose will create simplicity - with less time spent on executive pay and target setting. As well as higher levels of share ownership at CEO level which they believe will lead to higher long-term share price performance.
 
The report uses the term deferred shares to refer to any replacement of an LTIP that involves the award of long-dated share awards, including restricted stock, performance on grant plans and deferred bonuses. We have included the detailed definitions of these below.
 
The Investment Association’s Principles of Remuneration released in November 2019 - also gave some support to the recommendations of the Purposeful Company report noting that shareholders will “consider alternative remuneration structures if aligned to the company strategy”.
 
However, some investors have expressed concern, with views that restricted stock models provide payment for mediocrity or failure.
 
Some companies have already taken these sorts of plans to shareholders - but as we can see from the votes, investor support is not totally there yet. We have summarised the AGM votes on restricted stock plans and investor commentary accessible here, however, you can see the analysis for BT and Burberry below.  


 
 Detailed definitions
 
These are the terms used in the purposeful company report: 

• Deferred shares: restricted shares, deferred bonus, or performance on grant award.
• Restricted shares: an award of deferred shares without further performance conditions attached, other than possibly an underpin condition prior to vesting (see below). Typically, the value of shares awarded will be lower than for an LTIP. For example, an LTIP award with a maximum value of 200% of salary (if all performance conditions are met) might be replaced by restricted shares worth 100% of salary, vesting over a longer time period including holding beyond retirement.
• Performance-on-grant: an award of deferred shares, similar to restricted shares, but subject to a performance condition prior to grant, often over more than one year, giving rise to a greater expectation of variability in the award level. Because performance conditions still apply, the discount in maximum value will be less than for restricted shares. For example, an LTIP award with a maximum value of 200% of salary (if all performance conditions are met) might be replaced by an award of deferred shares that could be as high as 150% of salary, but might vary between 50% and 150% of salary (or even down to zero) based on performance conditions applying over one or more years prior to the award. Once awarded, the deferred shares operate in the same way as for restricted shares.

Tapestry comment
In a year when it has been difficult to set meaningful detailed LTIP performance conditions I expect we will continue to see more interest in these “restricted stock” structures. However, whilst there seems to be some support, as we have seen there is not consistent widespread support amongst investors yet. Particularly where they do not feel the new restricted stock award has appropriate terms including the underpin, the vesting schedule and of most controversy - the discount level.
 
Whether more companies are able to demonstrate that revised structures are aligned to strategy and secure investor support is unclear. Companies exploring an alternative structure to an LTIP this year, ready for next year, will need to make sure that they have considered how this aligns with the overall company strategy. How they will explain the award structure clearly to investors, particularly providing comfort on the discount level when compared to previous LTIPs and how it will not “pay for failure”.  Some investors are asking for companies to consult as far as 6 months out - so ensure you plan ahead.
 
The strong support at the AGMs of both BT and Burberry this week, demonstrates that where a company consults early, links strategy to reward and agrees the discount and vesting schedule with investors – these plans do get approved.
 
As the title of the article says - it’s all in the detail! Do not assume you know how an award operates from its title - ask the right questions and read the detail. When will ownership be delivered? When does the individual receive voting or dividend rights? Are there any restrictions or terms of forfeiture? What are the conditions of the award vesting? This will all impact the legal and tax implications of an award. Ensure that these details are explained clearly to investors so that they understand what is being proposed.

Restricted stock is one of the topics we are covering in our FTSE 100 review this year (as well as discretion, post-employment holding periods and ESG targets). 

Carla Walsham & Sarah Bruce

15 July 2020

The UK’s Chancellor has commissioned a review of the taxation of chargeable gains in relation to individuals and smaller businesses, including capital gains tax (CGT). Whilst this review is not share plan focused, it could have significant implications for UK taxpayers in share plans, as we explain below.

The review

In a letter released earlier this week (available here) the Chancellor, Rishi Sunak, has directed the Office of Tax Simplification (OTS) (which is an independent office of HM Treasury) to identify simplification opportunities in relation to the taxation of chargeable gains. In particular, the Chancellor has specifically directed the OTS to consider “any proposals…on the regime of allowances, exemptions, reliefs and the treatment of losses within CGT, and the interactions of how gains are taxed compared to other types of income”.  
             
In response to the Chancellor’s direction, the OTS has now published both a survey and a call for evidence to seek views about CGT. The OTS is seeking views from individuals, businesses, professional advisers and representative bodies. The survey has already opened, with the OTS stating this will be open until the end of the summer. The call for evidence has two elements: the first seeks comments on CGT principles and closes on 10 August, and the second seeks comments on practical and technical points, closing on 12 October.

Why is this happening?

The Treasury has said that it is merely following “standard practice” to review taxes regularly. However, the reference by the Chancellor to specifically consider the taxation of chargeable gains compared to other types of income has led to speculation that there could be an alignment of the rates of CGT and income tax, a move likely to be supported by Labour generally and which would increase the Treasury’s tax revenues following this period of increased spending.

What are the current CGT rates?

CGT rates are much lower than UK income tax rates. Currently, CGT is charged at 10% for basic rate taxpayers, rising to 20% for higher and additional rate tax payers (although slightly higher rates apply to residential property). Individuals also currently benefit from an annual CGT exemption (£12,300 for the 2020/21 tax year).

By way of contrast, income tax rates in England and Wales are 20% (basic rate), 40% (higher rate) and 45% (additional rate) and those earning less than £125,000 per year also benefit from an annual income tax exemption (currently up to £12,500).

Tapestry comment
Whilst simplification is the stated aim of the Chancellor’s review, an alignment of the taxation of chargeable gains with the taxation of other types of income would also serve to increase tax revenues.

The pie chart above (which is prepared based on data from the Institute of Fiscal Studies survey from November 2016) illustrates the stark difference in the government’s revenue from income tax when compared to capital taxes, including CGT (30% compared to just 1%). Whilst employment taxes such as income tax would likely still remain the bigger source of government revenue should rates of income tax and CGT be equalised, it would nevertheless raise much needed funds for the government at a time when public spending has increased rapidly.

The outcome of this review could have significant implications from a share plans perspective. For UK taxpayers participating in share plans, low rates of CGT can help encourage participants to hold onto their shares, knowing that any increase in value is taxed at lower CGT rates (or not taxed at all, if the gain falls within their annual exemption). Any reductions in the CGT annual exemption and/or equalising of rates of income tax and CGT would negatively impact the position of UK taxpayer participants.

Similarly, for those participating in UK tax-advantaged plans (such as Sharesave or the Company Share Option Plan), a gain arising on a tax-qualified exercise is currently subject to the lower CGT rates (subject to the annual exemption), rather than the higher income tax rates. Should the rates be equalised and/or the annual exemption be reduced or cut entirely, this would take away much of the advantage that such plans offer to employees (although the deferral of the tax point until sale may still be valuable to some).

By way of contrast, any increase in CGT rates would serve to make the UK tax-advantaged Share Incentive Plan (SIP) even more attractive to participants, given there are normally income tax savings and there is also no CGT payable on direct sales of shares from a SIP.

Whether Enterprise Management Incentive (EMI) options would still be able to qualify for business asset disposal relief (formerly entrepreneurs’ relief) remains to be seen but could make these options even more attractive. EMI can only normally be offered by small-medium companies but if options qualify for the relief gains are taxed at just 10%.

It is obviously still early in the consultation process and the outcomes of the OTS’s review will hopefully be shaped by the submissions they receive. Tapestry will be keeping a watchful eye for developments and will participate in the consultations. If you have views that you would like us to submit on your behalf, please let us know. The OTS has indicated they may be in a position to publish an interim update once the first of the consultation deadlines has passed, and we will of course update you when we hear more.

If you have any questions about this alert, or if you would like to discuss your remuneration structures, please do let us know.

Sarah Bruce and Emma Parker

5 June 2020

UK - Reminder to file share plan returns by 6 July
 
The date for filing your UK annual share plan returns for the 2019/20 tax year (which ended 5 April 2020) is fast approaching. The returns must be submitted by Monday 6 July 2020. 

Given the unprecedented levels of disruption to businesses caused by the Covid-19 pandemic, we had anticipated that HMRC might consider extending the deadline or relaxing the reporting requirements, but such measures have not (as yet) materialised. We must therefore proceed on the basis that the 6 July deadline is not going to change. As the registration and reporting process can take some time, we strongly recommend that if you have not already done so, now is the time to prepare and file your share plan registrations and returns with HMRC.

Remember that a return is generally required, even where there has been no activity (in which case a nil return should be filed).  

Service availability and downtime
In previous years, HMRC’s Employment Related Services (ERS) Online Services has been affected by outages which have impacted share plan return submissions. These issues have been particularly severe in the run up to the deadline day. HMRC has set up a web page (here) advising users about any current and planned issues with the ERS registration service. We may see similar issues this year with potentially reduced and delayed HMRC support due to pandemic-related resourcing problems. This increases the need to get the job done, now, rather than on deadline day!

Why is it important to register/file on time?
Failure to register and/or file on time has serious consequences:

• Financial penalties automatically apply if you fail to register your plans (and, for certain tax advantaged plans, self-certify that they are qualifying plans) by the deadline.
• Financial penalties automatically apply if you fail to correctly file your annual share plan returns by the deadline, even if no reportable events occurred in the 2019/20 tax year.
• Newly adopted UK tax advantaged plans will lose their tax status if you fail to register and self-certify them by the deadline, where awards have been granted in the 2019/20 tax year. This means that any awards granted under new share incentive plans (SIPs), save-as-you-earn plans (SAYE or Sharesave) and company share option plans (CSOPs) on or after 6 April 2019 will not be tax advantaged. 

First, you must register your share plans…
Before you can submit your annual share plan return(s) for the 2019/20 tax year, all relevant share plans must have been previously registered online with HMRC. Any SIPs, SAYE plans and CSOPs must also be self-certified online as compliant with the relevant UK tax legislation. You will likely have registered and, as relevant, self-certified existing share plans in previous years. Registration should only be required in relation to new plans implemented in the 2019/20 tax year. 

…next, make your annual share plan returns
To make your annual share plan returns, you will need the plan’s unique scheme reference number. This is provided by HMRC, typically within 10 days from when the plan is first registered. 

The annual share plan return must then be made by using the online templates, available through HMRC Online Services and accessible via HMRC’s PAYE Online Services (here). The return template you use will depend on the plan you are reporting on. Non-tax advantaged plans must be reported on the “other” template, but there are specific templates for each of the UK tax advantaged plans.

Tapestry comment
If you are registering/self-certifying a plan, there are a number of steps in the registration/self-certification process which can delay submission of the related annual return for that plan. We recommend you begin the registration/self-certification process as soon as possible. We are, of course, always happy to help.

You may already operate one single registration (and submit one single filing) for all of your existing non-tax advantaged plans. If this is the case, you might not need to register new non-tax advantaged plans separately. You might simply be able to report relevant ‘reportable events’ for that plan in the filing for your existing non-tax advantaged registration. If you are unsure whether or not this applies to you, please do get in touch. However, note that all tax advantaged plans must be registered (and self certified) separately.
 
There are different (and significantly more onerous) requirements and deadlines for UK tax advantaged enterprise management incentive (EMI) option plans. Do please get in touch if you operate, or are intending to operate, an EMI plan.

Is there anything else I should know for this year’s filing?

• Terminated plans: If you no longer use a share plan, you still need to make an annual return in respect of any outstanding awards. Once all awards have ‘paid out’, you can stop filing but only after you have informed HMRC that the plan has terminated. Further information about ceasing a share plan registration is available here. Remember that timing is key to avoid additional nil returns.
• Templates: We recommend that you always download the most recent templates from the HMRC web site and avoid using previously downloaded templates. You should not alter the template in any way, e.g. by deleting tabs or columns, altering the format or changing its name. Altering the template will result in an error message and the gateway will not allow you to upload it.
• Template file names: The file names for the templates still have “2015/6” in the title because they have not been renamed since they were first made available by HMRC. However, the templates available online are the latest versions and HMRC has confirmed that the templates should continue to be used unchanged.
• Mistakes: HMRC has identified common mistakes in newly registered plans, including companies selecting the wrong plan type when registering a share plan, and errors in the tax advantaged plan documentation. In particular, remember that only UK tax advantaged plans are considered tax advantaged for the purposes of these registrations. Any plans that maybe tax advantaged outside the UK should be registered using the “other” template.
• Formatting errors: The template files are format sensitive and the HMRC checking service (here) allows companies to check for formatting errors prior to filing the completed templates. We recommend using this service to avoid delays in filing.
• Don’t leave it to the last day! We strongly recommend that you complete and file your annual share plan returns (and, if needed, register/self-certify your plans) well in advance of the 6 July 2020 deadline to reduce the risk of late registration/filing. This is particularly the case where a new registration is required, because (as noted above) there are a few steps along the way that could cause delays in submission of the related annual return.

Tapestry comment
Although several other annual reporting style requirements have been delayed or cancelled for 2020, we are yet to hear of any such developments for the annual share plan filing. We will keep you updated if this situation changes but, for now, companies should be working to the 6 July deadline.

With the current coronavirus pandemic, it is easy to lose sight of your share plans and your annual filing requirements. If you would like our help in registering your plan(s) or preparing your annual share plan filing(s), and/or if you have any other queries regarding your 2020 annual share plan returns, please do contact us. We would be delighted to help!

Chris, Tom and Matthew

4 June 2020

The Argentinian Central Bank continues to tighten access to the foreign exchange market for Argentine residents. New rules released at the end of May have added a 90-day delay on individuals accessing the foreign exchange market. We have reported on the increasingly stringent foreign exchange regime in Argentina several times since it was reintroduced in September, most recently in our alert in April.

With limited exceptions, accessing the FX market to purchase or transfer foreign currency abroad is subject to the prior approval of the Central Bank. Individuals are permitted to purchase up to USD200 per month but, under the latest extension of the rules, they must confirm that, for 90-days prior to the day of the purchase of the foreign currency, they have not sold securities (or transferred securities to a foreign depository) in foreign currency. They must also undertake that they will not carry out such transactions for an additional 90-days after the purchase of the foreign currency. Similar rules apply to purchases of foreign currency by companies.

New restrictions also apply to the outflow of funds from Argentina to pay for imports (including services) and to carry out financial transactions, such as the payment of profits and dividends. These restrictions may be permitted subject to the filing of a sworn affidavit.  There are exemptions to the obligation to file the affidavit and, if applicable, we recommend that these additional restrictions are discussed with your local finance teams. 

Tapestry comment 
The FX restrictions detailed above are just the latest saga in the increasingly tough FX environment in Argentina and need to be considered in the context of the other foreign exchange restrictions that have been put in place since September. In particular the USD200 monthly limit on outward transfers and the 30% FX tax. The 90-day “freeze” on access to FX markets is now another limiting factor to be taken into account when operating a share plan involving outward remittance for employees in Argentina. Monthly share purchases and transfers may no longer be possible and may have to be replaced by accumulation periods and quarterly purchases, subject to general legal requirements relating to the enforceability of any post-acceptance plan amendments. 

We suggest that you discuss this new measure along with existing restrictions with your local finance teams and consider if you can find a way to navigate the rules in practice. We will continue to alert you to these developments although most companies will already have taken action in response to the FX controls, which look likely to remain in place for some time.

The situation in Argentina is complex so please let us know if you require any assistance navigating these foreign exchange regulations. 

Carla and Sharon

26 May 2020

HMRC have successfully reversed an earlier first tier tax tribunal decision concerning tax relief on certain non-cash pension contributions. This is a high profile tax ruling with potentially huge consequences for holders and administrators of Self Invested Personal Pensions (SIPPs). This might be of particular importance where employees and executives used shares acquired in connection with company incentive plans to fund their personal pensions.
 
The Upper Tribunal granted an appeal by HMRC in the matter of its dispute with Sippchoice Ltd, a SIPP provider (The Commissioners for Her Majesty’s Revenue and Customs and Sippchoice Ltd, [2020] UKUT 149). The effect of the ruling is that income tax relief on contributions to SIPPs is permitted only where those contributions into SIPPs are paid in money and not "in specie" (such as shares or other types of property).
 
Broadly, individuals can get income tax relief on certain pension contributions. Previously, many individuals made contributions of shares or other property into their SIPPs and obtained income tax relief on those contributions. They followed a procedure - since stopped - laid down in guidance by HMRC at the time and substantial amounts of income tax relief were claimed.  
 
The Upper Tribunal has given us another reminder that HMRC’s guidance is not the law. It ruled that these historic contributions are not, as a matter of the law, eligible to attract the tax relief. As a result, SIPP policy holders and providers must now consider how the tax relief granted on previous “in specie” contributions might be paid back to HMRC.
 
We await a decision whether Sippchoice appeals this decision.
 
Tapestry comment 
Yet again, and frustratingly, we see that following HMRC’s guidance is no substitute for applying the law. Policy holders and administrators will now be left in a tricky and potentially challenging spot where, if there is no appeal, HMRC looks for repayment of these amounts.
 
Whilst they and their advisers will doubtless claim that they had a legitimate expectation that HMRC would apply its own original guidance, we have seen in other high profile cases (i.e. the "Hanover" case) how difficult it is to sustain this argument. Policy holders may have to accept that they will have smaller pension pots than they were anticipating.
 
Although the tax relief on non-money pension contributions has since been stopped,  if your company pension arrangements previously allowed or facilitated these “non money” contributions in SIPPs in connection with your other share plans, you will need to consider carefully how you and your administrators will communicate this issue with the policy holders who may be affected by this decision.. We must expect to see HMRC revising its approach and hope to see guidance soon. There are a number of complicated issues still to address - for example what will happen to those retirees now drawing down on their SIPP fund? In the interim, we think it’s wise to assess now whether and to what extent this issue might affect your current or former employees and work with your advisers to prepare your approach.

If you have any questions about this alert, please do contact us.

Chris Fallon