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January 14, 2014
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Employee Share Ownership Schemes - An Update

See our Spring 2014 Tax Update for more recent cases.

The current government are encouraging towards direct ownership by employees of shares in their employing company:-

The Introduction of Employee Shareholder Shares

From 1 September 2013, an employer can provide shares with a value of at least £2,000 to each of its employees. In exchange for these shares the employee will become an "Employee Shareholder"; such an employee will have redcued employment rights, including a lack of redundancy rights and restricted unfair dismissal rights.

The tax implications of providing Employee Shares are as follows:-

- The first £2,000 of value in shares are received tax and national insurance free by the employee

- Gains on a future sale of these shares are only subject to capital gains tax where the total gain is higher than £50,000

- The company will receive a corporation tax deduction for the value of shares provided to the employee

Improvements to the Enterprise Management Incentive Scheme (EMI)

To qualify for a 10% tax rate through Entrepreneurs' Relief on a sale of shares, an individual normally has to own at least 5% of the company's ordinary voting share capital.

However, new rules state that share holdings of less than 5% can qualify for Entrepreneurs' Relief if they are acquired through an EMI scheme.

Also the minimum holding period of one year for shares to qualify for Entrepreneurs' Relief will now take into account the time from the date of the grant of the option to its exercise.

Therefore, any business that wishes to provide sub 5% shareholdings to employees should consider doing so via an EMI scheme (if the company itself qualifies).

See a recent case study on the use of EMI schemes to incentivise key employees.

Share Incentive Plans - Thresholds Raised from 6 April 2014

A share incentive plan allows trading companies to provide shares to all its employees on the same terms but in a tax efficient manner.

The value of free shares that can be provided to each employee will be increased from £3,000 to £3,600 per year. Annual limits on Partnership Shares to be provided to employees have also risen from £1,500 to £1,800.

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See our Spring 2014 Tax Update for more recent cases.

Contact us today to discuss your tax requirements.
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