The OTS has published its Claims and Elections review

In this report the Office of Tax Simplification (OTS) looked at ways to simplify the administrative processes for making claims and elections across income tax, corporation tax, capital gains tax and VAT.

From an incentives perspective, the main recommendation to note relates to restricted securities elections under section 431 of the Income Tax (Earnings & Pensions) Act 2003 (s.431 elections).

s.431 elections are a joint election between an employee and their employer and the effect of the election is that the employee is taxed on acquisition of restricted securities with the tax charge based on the unrestricted market value rather than the (lower) actual market value.  The election must be entered into within 14 days of acquisition of the securities and if no election is made, further charges to income tax will arise when the securities are sold or restrictions are lifted.

The OTS recommends that the position be reversed with an election needing to be made if the employee and employer agree that the charge to tax on acquisition should be based on the actual market value of the securities.  The OTS also recommends that a requirement to file s.431 elections with HMRC is introduced.  The basis for the recommendation is that a reversal of the current position would be simpler and would lead to many fewer elections needing to be made.  And the proposal that s.431 elections must be filed with HMRC is aimed at avoiding difficulties in verifying whether or not an election was made on a timely basis.

Other recommendations in the OTS' report focus on:

• improving the functionality of personal tax account and the business tax account, including the addition of an ability to make more claims and elections within the account;
• changes to employee expenses to improve the process of making a claim;
• simplifying the different levels of flat rate expenses and bringing the list bring up to date; and
• improvements to HMRC online forms.

HSF comment: the impact on forfeitable shares will need to be considered if the government accepts this recommendation.