New Employee Shareholder Status

Newsletter issue - October 2013

The Government thinks that employees who own shares in their employing company feel more involved in that business and hence are happy and loyal employees. So it has introduced a new share scheme from 1st September 2013 which allows you, as an employer, to give your employees tax-free shares in your company, but in return the employees must give up some key employment rights.

How does this work?

The employee must sign a fresh employment contract called an 'employee shareholder' contract, then they must be issued with shares worth at least £2,000 (and up to £50,000) in their employing company. When the individual sells those shares any gain arising on that disposal is completely exempt from capital gains tax. However, any gain up to £10,900 (for 2013/14) would be tax free anyway.

Normally where shares are awarded to an employee their value is treated as taxable income for that employee, unless the shares are issued under an approved share scheme. In this case the first £2,000 worth of shares awarded will be free of income tax and NIC, but not any further shares.

The downside is the employee must surrender all of following rights to take up employee shareholder status and receive the free shares:

  • compensation for unfair dismissal, apart from when this is automatically unfair or relates to anti-discrimination law;
  • request for time off for studying or training;
  • request for flexible working; and
  • statutory redundancy pay.

Also the employee must give 16 weeks' notice (instead of 8 weeks) when returning from maternity or adoption leave.

This sounds like an attractive deal for an entrepreneur who doesn't care about his own employment rights. However, any person who holds 25% or more of the company (alone or with associates) can't take up employee shareholder status and enjoy the tax-free shares. So this share scheme can only be used to give shares to employees who don't already have a significant share in the company.

Before implementing this scheme you should take employment law advice, and specialist advice on how to value your company's shares. The employees should also take independent advice before signing away their employment rights, but you, as their employer, can pay for that advice with no tax consequences.

What our clients say about us...

  • "Paul has provided accountancy services to my company for 2 years now. I can recommend Paul very highly; his skills as an accountant are highly detailed and professional and he is always available to provide advice. One aspect of the way Paul works that I greatly appreciate is a preference to meet face to face when there is a detailed conversation to be had. I personally find this more productive and is a benefit of working with a small accountancy firm that you wouldn't get with the large faceless providers."

    ALISTAIR FAIRWEATHER - PROGRAMME & PROJECT MANAGER, DELIVERING/RESCUING I.T. 7 BUSINESS CHANGE WITH BUDGETS UPTO £50M INC SUPPIER MANAGEMENT

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    Neil Price - Managing Director at Work Relief Charity Recruitment

  • "Paul was a referral from a family member when I started my business 2 years ago. As this was the first time I had ever run my own company I was totally clueless over the financial side of matters and was worried that I may have made mistakes in any of my accounting. I needn't have worried as after enaging Paul for a set monthly fee he was always there on the end of the phone for all sorts of questions I had and no matter how trivial they were Paul gave me all the information I required and more and did an excellent and painless job at the end of my first year! Couldn't ask for any better to be honest. Just two words - hire him!!!"

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Booth & Co  |   The Hermitage  |   15a Shenfield Road  |   Brentwood  |   Essex  |   CM15 8AG        Telephone: 01277 224666    |   Email: info@boothandco.co.uk