Autumn Statement 2012: The government is considering options to reduce income tax and national insurance contributions (NICs) that arise when employee shareholders receive shares from their employer.
The options include deeming that the first £2,000 of shares received under the employee-shareholder status would be free from income tax and NICs.
As previously announced, the government will exempt gains on up to £50,000 of shares acquired by employee shareholders from capital gains tax (CGT) from 6 April 2013.
The government issued its response to a consultation into the employee-owner scheme, which will now be called employee-shareholder scheme, on 3 December.
The scheme, which was initially announced by Chancellor George Osborne on 8 October, would require employees to give up employment rights, such as wrongful dismissal, the right to redundancy pay and the right to ask for flexible working, to receive between £2,000 and £50,000 worth of shares in the company they work for.
In the Autumn Statement, it was confirmed that the Treasury and HM Revenue and Customs (HMRC) will support the Department for Business, Innovation and Skills (Bis) and the Cabinet Office in implementing the government’s response to the Nuttall review of employee ownership by contributing to a new implementation group, and the development of employee-ownership templates and toolkits.
It will also work with Bis, John Lewis Partnership and Santander to develop a forum to promote better access to finance for the sector.
Further financial incentives are being considered and will be announced in the 2013 Budget.
Graeme Nuttall, partner at law firm Field Fisher Waterhouse and author of the Nuttall review, said: “It is great to see that the Treasury has today recognised the importance of the employee-ownership business model and has promised further work to promote it.
“It is for all in the employee-ownership sector, and other more recent supporters in the wider business community, to get behind this dynamic agenda and make this the decade in which employee ownership enters the mainstream of the UK economy.”
The government’s paper responding to the recent consultation on shares for giving up employment rights indicates that, of the 209 responses, only three respondents indicated that they were likely to adopt the new proposals. Despite this and other widespread criticisms of the proposal, the draft legislation will go ahead. Amendments are being introduced to try and simplify valuation issues, ensure that the shares can be delivered cost free and reduce the tax exposure. The message must surely be that these proposals need working up in significantly more detail if they are to have any chance of being viable.
Incentivising employees to trade in workplace rights for tax-free shares is in principle a positive step, which should encourage employees to take ownership for company performance and show long-term commitment to their employers. However, we are concerned that employment rights continue to receive the right level of protection, but if the right balance is struck the scheme could lead to increased workforce productivity.
We warmly welcome the Chancellor’s comments today within his Autumn Statement that employee ownership is an important part of the UK growth agenda and is a business model that the government supports. This is a valuable endorsement of a part of the economy that contributes more than £30 billion to UK GDP each year.
His commitment today to bring to the table the resources and expertise of the Treasury to work with other parts of government to increase the number of employee-owned businesses in the UK is also a very positive development and one that our members appreciate and are keen to participate in over the coming months.
We also welcome the announcement in the Autumn Statement that the government will in the short term implement a package of simplifications to existing employee share schemes and will keep under review the possibility of introducing at the time of the next Budget further incentives to promote employee ownership if an economic case can be made for doing so.
All of these commitments and statements today are a result of the recent Treasury Review into employee ownership, a review that the EOA successfully pushed very hard for and to which a number of our members made representations.