"Employee Shareholder" tax regime coming into force
On 1st September 2013, the Employee Shareholder tax provisions contained in Schedule 23 of the Finance Act 2013 will come into force, amending Income, Capital Gains and Corporation tax provisions.
On 1st September 2013, the Employee Shareholder tax provisions contained in Schedule 23 of the Finance Act 2013 will come into force, amending Income, Capital Gains and Corporation tax provisions.
Back in October 2012, plans were first announced to introduce a new type of employment status, whereby Employees give up certain employment rights in return for shares in the Company.
The Growth and Infrastructure Act 2013 inserts a new section into the Employment Rights Act 1996, which allows the Employer and Employee to agree that in return for the Employee becoming an Employee Shareholder, the Employee will receive or be allotted shares in the Company worth at least £2,000. Any gains made on the first £50,000 worth of shares will then be exempted from Capital Gains tax.
In return, the Employee will, amongst other things, give up the right to make a flexible working request unless returning from parental leave, have no unfair dismissal rights (other than in cases of automatic unfair dismissal E.G health and safety or whistleblowing related dismissals), and have no rights to receive a redundancy payment.
The Employer needs to pay the reasonable cost of the worker taking independent advice on the new status, existing Employees cannot be dismissed if they refuse to become Employee Shareholders, and the offer of the status must be accompanied by a statement setting out which rights are given up, and what rights are attached to the shares that are issued.
Given that the reforms were strongly opposed on their journey through Parliament, it remains to be seen whether take up of the new status will be popular and/or wide-spread. Nevertheless, some commentators have suggested that Employee take-up may actually be higher than many imagine, given that Employees who would not achieve two years continuous service (and who do not gain the right to bring an unfair dismissal claim) would not be giving up that much, in return for potentially valuable shares in the Company.
However, a number of outstanding points still remain, which will hopefully be addressed in the coming weeks:
- How will the shares be valued?
- Will the costs of the new status outweigh the perceived benefits that the status will bring?
- Will Employees be dismissed immediately should they choose to dispose of their shares, given that they do not revert to being a ‘normal Employee’ and will still not have any unfair dismissal protections?
- Will the status only be offered in practice, on a ‘take it or leave it’ basis?