The government is to conduct an internal review to examine the role of employee share ownership in supporting growth and examine options to remove barriers, including tax barriers, to its wider take-up.
As announced by Chancellor George Osborne in the 2012 Budget report, the review will also consider the findings of the work on employee ownership being conducted by the Office of Tax Simplification (OTS), which is due to report in summer 2012, and will conclude ahead of the Autumn Statement 2012.
Mark Quinn, a partner in Mercer’s human capital business, said: “Employee ownership is integral in providing an engaged and productive workforce so we will monitor developments in this area carefully.”
Malcolm Hurlston, chairman of the Employee Share Ownership Plan (Esop) Centre, added: “We are giving our support to the employee ownership and believe, with a few technical changes, it could be used by many more companies.”
The government will also more than double the individual grant limit on enterprise management incentive (EMI) schemes, from £120,000 to £250,000, to comment at the earliest opportunity following state aid approval and provide enhanced guidance to support start-ups.
The Budget also confirmed that entrepreneur’s relief will be extended to gains on shares acquired through EMI, and the government will consult on extending the scheme to academics employed by a qualifying company, from April 2013, subject to state aid approval.
“EMI is the jewel in the crown of our share scheme legislation and has rightly won praise from the European Union as a model for other countries to follow,” said Hurlston. “It allows employees of small and medium enterprises (SMEs) to share in the growth of their business.
“We hope that the limit for the total value of all options granted at one time for any one company will be raised from £3 million alongside this announcement to allow more employees to benefit.”
Read more articles from the 2012 Budget report
It is a pity the Government is giving a delayed response to the recommendations on tax advantaged share plans made by the Office of Tax Simplification in their recent report. This gives the impression these potential reforms have been put in the “slow lane” as opposed to the much needed “fast lane”. It is also disappointing that the limits for SAYE schemes and SIPs have not been increased as per the recent lobbying by ifs Proshare.
EMI employee share schemes are attractive and simple for smaller employers to use and are widely recognised as having a positive motivational effect.
More than doubling the grant limit from £120,000 to £250,000 will increase their appeal still further, prove a shot in the arm for smaller growing companies and go some way towards creating the ‘John Lewis economy’ to which the government aspires.
This was actually something discussed by the Office of Tax Simplification (OTS) share schemes consultative committee, but rejected as costing too much.
The return of entrepreneur’s relief for EMI options holders is also welcome news. The details are awaited, but we expect that individuals will not need to hold at least 5% of the company to qualify for the relief, and that the holding period will move back from option exercise to option grant, making it easier for employees to take advantage of the lower rate.
Despite recently voiced support from Conservative, Liberal Democrat and Labour MPs, we are again disappointed that the Treasury has missed the opportunity to promote one of the most successful savings and investment plans created in the past 30 years by not increasing the amount of money millions of workers can save in an all-employee share plan.
If these savings’ limits had been increased in line with inflation they would stand at £450 a month for sharesave savers and £2,000 a year for share incentive plan (Sip) investors.
The government should raise the monthly savings limits immediately and make sure they increase in line with inflation on an annual basis. Individual savings accounts’ (Isa) limits increase every year so why not share plans?
We welcome the announcement that the government will be looking at what more they can do to encourage employee ownership.
To encourage growth in the UK, we need strong companies that can provide great products and services over the long term. Committed staff are essential for successful organisations, but too often employees are last in line when it comes to company ownership and sharing rewards.
Employee ownership is a driver of medium-term growth and long-term sustainability. Lower workplace absenteeism and sickness, and higher employee wellbeing and engagement in the workplace mean the review of tax treatment for employee-owned organisations could provide a huge boost to companies in the UK when it concludes in the Autumn.
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