This year’s Finance Act, which received royal assent in July, introduced a new employee shareholder status. As of 1 September 2013, employee shareholder contracts can be offered when shares with a value of at least £2,000 are awarded in the employer or parent company.
Independent advice
Employee shareholder status offers tax-privileged treatment of the shares in exchange for reduced employment rights. Given the element of sacrifice this entails for the employee, independent advice is required before an individual decides whether employee shareholder status is right for them.
Tax breaks for the employee
Tax advantages for the employee shareholder include no income tax or National Insurance Contributions payable on the first £2,000 of share value received and a Capital Gains Tax exemption for gains on the disposal of up to £50,000 worth of shares.
Tax breaks for the employer
Employers get full corporation tax relief on the value of shares awarded to and on the cost of the independent advice provided to employee shareholders. There is no requirement for businesses wishing to offer an employee shareholder contract to obtain HM Revenue & Customs approval or agreement.
Employment rights
All employee shareholders retain entitlement to key benefits such as statutory sick pay, maternity or paternity leave, minimum wage and paid annual leave, but they forgo unfair dismissal rights, statutory redundancy pay, the right to request flexible working and certain statutory rights to request time off to train.
The government’s rationale
The government expects employee shareholder contracts to appeal to companies looking to attract ambitious and high calibre staff in a competitive labour market, with the hope that employee shareholders increase productivity through a feeling of greater involvement in their employers’ businesses. The status is likely to appeal to those working in fast-growing firms who see potential for the shares to increase in value through their efforts, with the ultimate aim of being able to realise tax-free capital gains on eventual sale of up to £50,000 worth of shares.
Criticism
Despite the government’s hopes, take-up is expected to be slow and the legislation was heavily criticised as the Finance Bill went through parliament. It was opposed by a number of ex-ministers in the House of Lords, including former chancellor Lord Lawson, whilst shadow business secretary Chuka Umunna said the government had produced no evidence to show how the measure would boost growth.
The Trade Unions Congress has dismissed the new legislation as an ‘expensive gimmick’, fearing that employees will be forced into accepting roles where they lose basic rights in return for shares that could prove to be worthless, whilst British Chambers of Commerce had received no enquiries from interested businesses ahead of the 1 September launch date.
It is early days for employee shareholder contracts but the political and business consensus at outset appears to be that uptake will be embarrassingly small.
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
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