Tag Archives: employees

Employee Shareholder Shares

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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.

Christmas Gifts to your Employees

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Many employers like to give Christmas gifts to their employees to reward them for their effort throughout the year. Unfortunately HM Revenue and Customs will generally view such gifts as taxable in the hands of the employee.

The only instance where a gift is not taxable is if the Tax Inspector agrees that the benefit is of a trivial amount. HMRC’s manuals point out that there is no set monthly limit below which a benefit is deemed to be trivial. The manuals give examples of the sorts of items which they will not seek to tax. Examples given include “seasonal gifts such as a turkey, an ordinary bottle of wine or a box of chocolates”.

In deciding whether the gift is a trivial benefit or not it is necessary to consider the individual employee rather than the total cost. For example an employer with a large workforce could spend a lot of money giving small gifts to each employee. This would not alter the fact that the benefit might be trivial.

If the gift extends beyond one of the small items mentioned above, for example a case of wine or a Christmas hamper, then the Inspector will consider the cost and contents of the gift in deciding whether to agree the benefit is trivial.

You should also be aware that gifts of cash or items which can be readily converted into cash such as retail vouchers will not be considered a trivial benefit irrespective of their value.

If you want to give larger gifts to your employees but don’t want them to suffer a tax charge you can enter into a PAYE Settlement Agreement with HMRC to pay the tax on the employees behalf.

Setting up in England?- don’t forget Employment Law

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When an overseas individual or company has decided to set up a business in England*, they will have considered location and logistics, suppliers, rental or purchase of office and production facilities, and a whole host of other practical operational issues.

They will have considered such matters as whether to trade via a company or branch (although they may not know that the status of overseas individuals working in the UK can be different in a UK Limited company compared to a UK branch).  If operations are via a company, they will consider whether that is a UK Limited Company, LLP or some other special purpose vehicle.   They will have considered corporation tax rates, capital allowance, income tax rates, VAT, extraction of profits and double tax treaties.  But employment law is often forgotten, and, if not handled properly, can be both time-consuming and costly if employee relations go wrong.

Easing the burden for business

Earlier this month the qualifying period for unfair dismissal increased from 1 year to 2 years of continuous employment.  That means that for all employees starting employment after 6 April 2012, the employee will not be able to claim that their dismissal was procedurally or substantially unfair in their first 2 years of continuous employment.

This contrasts with other, particularly European, jurisdictions where employers are bound by very strict dismissal procedures and the need for employers to justify their decision to dismiss, once the employees fairly short probation period has expired.

In 2013 further measures are likely to be introduced, which will require the employee to pay a fee for bringing a claim against their employer.  In addition, the government is planning on introducing new rules which are designed to give employers the power to have ‘frank discussions’ with employees.  These will be will be held outside formal ‘performance’ or ‘disciplinary’ procedures,  without fear of facing employee  discrimination claims, and will include talks on underperformance as well as discussions over whether or not an employee should consider retirement.

In addition, there are proposals to cut the length of the consultation period in redundancy situations, to speed up the whole process.

The above changes are all aimed at reducing the ‘red tape’ and easing the burden for businesses in the current economic circumstances.

This all sound like good news for the employer?

Although employers in England will be able to dismiss with less than two years continuous employment without the need to give any reasons or follow any formal procedures, they need to be aware of other areas of the law, and correctly follow procedures so as to minimise the risk of a claim.

This is because employees can claim ‘discrimination’ under the Equality Act 2010.  The act covers nine protected characteristics, which cannot be used as a reason to treat people unfairly. Every person has one or more of the protected characteristics, so the act protects everyone against unfair treatment.  Notice that I use the word ‘people’ rather than ‘employee’ here, because a claim can be brought under this heading even before employment actually starts, ie at the recruitment interview stage!

There are nine ‘protected characteristics’ where discrimination can apply:

• Age
• Disability
• Gender reassignment
• Marriage & civil partnership
• Pregnancy & maternity
• Race
• Religion or belief
• Sex
• Sexual orientation

Looking forward

The new auto-enrolment pension scheme being introduced by the government places additional cost burdens on both employees and employers.  Employers need to cost these into budgets and forecasts.

There are possibly other measures in the offing.  We are currently awaiting the governments’ response to the Modern Workplaces Consultation.  This covers the possibility of flexible working, giving the right to all employees, not just those with young children, to request flexible working (either ‘part-time working’ or ‘working from home’ arrangements).

In summary

This brief sprint through some current employment issues shows that the government has gone some way in reducing the burden of ‘red tape’ faced by businesses.

However, as you can see, the employer setting up in England needs to be well briefed. Policies and procedures need to be clearly set out and followed.  But it is also important to be properly advised, as attention has to be paid not only to current legislation, but also to potential future legislation, and the impact this can have on the UK business.

* Note – ‘England’ includes Scotland and Wales, (but not Northern & Southern Ireland or the Channel Islands, where employment law differs)