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Growth Securities Ownership Plans (GSOPs) – lead cases designated for litigation

GSOPs lead cases designated for litigation

The First Tier Tribunal (FTT) has specified two appeals against HMRC assessments as lead cases for GSOP litigation.

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How GSOPs work

In summary, under a GSOP a company enters into a Contract For Differences (CFD) or a contract similar to a CFD, with its participating employees.

Under that arrangement:

  • The company will make a payment to the participant if a specified event (e.g. satisfaction of a corporate performance condition) occurs; and
  • The participant will make a smaller payment to the company if an alternative specified event (e.g. failure to meet a corporate performance target) occurs.

Promoters of GSOPs contend that payments received by participants should be taxed as capital gains, rather than as employment income.

HMRC’s view

In February 2016, HMRC stated in its Spotlight 28 publication that it did not agree with the promoters’ views on the tax treatment of GSOPs.

Instead, HMRC considered that payments made to GSOP participants were subject to PAYE and both employee’s and employer’s National Insurance Contributions (NIC), as employment income.

HMRC contacted GSOP users individually and invited them to settle the PAYE and NIC that HMRC considered to be due. A number of employers settled on that basis (HMRC reports that it has recovered £128 million through this process).

What has happened now?

The FTT has now designated two lead GSOP cases for litigation.

When these cases will be heard has yet to be confirmed and appeals against PAYE and NIC assessments in 54 other cases will be stayed pending their outcome.

Other GSOP users might wish to wait for the FTT’s ruling before deciding on an appropriate course of action in relation to their own arrangements.

If HMRC is successful before the FTT, it is likely to issue follower notices to employers that implemented similar arrangements.

At this stage, it appears likely HMRC would appeal any defeat on these lead cases.

If you have any queries, please get in touch with your normal contact or e-mail employersclub@kpmg.co.uk.

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