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Budget stuff  •  Business Services  •  Business Tax  •  capital gains tax (cgt)  •  Personal tax  •  Share Schemes  •  Small Business

New employee shareholder contracts to offer CGT free benefits to staff

By RJP LLP on 4 April 2013

In our Budget review last month we mentioned one interesting announcement of a new tax relief, which had not been expanded upon in HMRC’s release notes. This is the opportunity for employee shareholders to dispose of shares without incurring capital gains tax (CGT). Further details have now been published and present an interesting new proposal for owner managed companies to consider.

These new proposals effectively require an employee to relinquish some of their employment rights and adopt a new ‘employee shareholder’ employment status. They are then able to acquire shares in their employing company through the adoption of this status. These shares will in turn attract new tax reliefs which will ensure that shares acquired up to a value of £2,000 will not attract tax and national insurance contributions when they are acquired, and sale proceeds received of up to £50,000 from eventually selling the shares will not be charged to capital gains tax.

It is proposed that under the terms of their alternative contracts, employees will forfeit the right to claim unfair dismissal and will not be eligible for redundancy pay; they will also lose the right to request flexible working hours and to have any time off for training (unless at the employer’s discretion). A further contractual change is the requirement to provide employers with 16 weeks’ notice (compared with the usual 2 months) and new mothers will need to give their employer a fixed date of return from maternity leave.

These proposals are intended to come into effect from 1 September 2013, but may not fully come to fruition if they are considered to be in contravention of employment legislation; it will be interesting to watch how the employment arguments unfold in the next few months.

It is clear that in designing this policy the Government is looking for ways to help entrepreneurs and small company owners by making it easier for them to recruit talented people without the fear of onerous employment restrictions, whilst also inspiring them to succeed. The economy continues to be depressed in many sectors, yet the challenging market conditions mean most company owners say they have never been so busy. This new way of offering employment contracts will offer a flexible and less risky way to expand a workforce, if it is allowed to proceed in its proposed format.

Giving shares to employees still needs careful consideration however, because making employees shareholders of course has its own issues, and if you already operate an EMI (enterprise management incentive) share option scheme, this may be something you can offer as an added incentive.

What makes this proposal particularly interesting is the way it seeks to address a particular problem for business owners; the increasing litigation culture.  In our view this new policy, if allowed to progress, will offer a good way to help business owners reduce some of the risks of employing staff in return for offering their employees more involvement in the company. It should be a way for smaller company owners in particular to become a more attractive employment proposition, helping them to recruit the best talent for their growing businesses.

If you are interested in discussing the tax implications of offering the new employee shareholder contracts to your employees from September 2013, please contact Lesley Stalker by emailing las@rjp.co.uk.

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60 Day Deadline for CGT Returns and Tax Payments

If you sell a property and incur capital gains tax on the transaction, you will need to file a tax return and also pay any tax that is due within 60 days of completion, or penalties will arise. Need help with your property taxes? Talk to us.

In our Budget review last month we mentioned one interesting announcement of a new tax relief, which had not been expanded upon in HMRC’s release notes. This is the opportunity for employee shareholders to dispose of shares without incurring capital gains tax (CGT). Further details have now been published and present an interesting new proposal for owner managed companies to consider.

These new proposals effectively require an employee to relinquish some of their employment rights and adopt a new ‘employee shareholder’ employment status. They are then able to acquire shares in their employing company through the adoption of this status. These shares will in turn attract new tax reliefs which will ensure that shares acquired up to a value of £2,000 will not attract tax and national insurance contributions when they are acquired, and sale proceeds received of up to £50,000 from eventually selling the shares will not be charged to capital gains tax.

It is proposed that under the terms of their alternative contracts, employees will forfeit the right to claim unfair dismissal and will not be eligible for redundancy pay; they will also lose the right to request flexible working hours and to have any time off for training (unless at the employer’s discretion). A further contractual change is the requirement to provide employers with 16 weeks’ notice (compared with the usual 2 months) and new mothers will need to give their employer a fixed date of return from maternity leave.

These proposals are intended to come into effect from 1 September 2013, but may not fully come to fruition if they are considered to be in contravention of employment legislation; it will be interesting to watch how the employment arguments unfold in the next few months.

It is clear that in designing this policy the Government is looking for ways to help entrepreneurs and small company owners by making it easier for them to recruit talented people without the fear of onerous employment restrictions, whilst also inspiring them to succeed. The economy continues to be depressed in many sectors, yet the challenging market conditions mean most company owners say they have never been so busy. This new way of offering employment contracts will offer a flexible and less risky way to expand a workforce, if it is allowed to proceed in its proposed format.

Giving shares to employees still needs careful consideration however, because making employees shareholders of course has its own issues, and if you already operate an EMI (enterprise management incentive) share option scheme, this may be something you can offer as an added incentive.

What makes this proposal particularly interesting is the way it seeks to address a particular problem for business owners; the increasing litigation culture.  In our view this new policy, if allowed to progress, will offer a good way to help business owners reduce some of the risks of employing staff in return for offering their employees more involvement in the company. It should be a way for smaller company owners in particular to become a more attractive employment proposition, helping them to recruit the best talent for their growing businesses.

If you are interested in discussing the tax implications of offering the new employee shareholder contracts to your employees from September 2013, please contact Lesley Stalker by emailing las@rjp.co.uk.