Employee-owner scheme divides opinion

Government plans to let employees swap rights for shares have received a mixed reaction from accounting and union professionals. 

The Chancellor announced at the Tory conference yesterday that from April next year, employees would be able to forfeit their rights and instead receive company shares worth between £2,000 to £50,000. The shares would be exempt from capital gains tax, and the scheme would be voluntary and aimed towards small-to-medium, fast growing businesses. 

Rights they would have to give up include: 

Continued...

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Comments
johnjenkins's picture

I would presume

johnjenkins | | Permalink

If employees became the majority shareholders they could write the "rights" back in the contracts of employment therby making the giving of tax free shares a part of salary.

Divides opinion? Surely not.

waltere | | Permalink

"Given to any rational person who is able to think for themselves it would be of benefit," said Chris Blundell of MHA McIntyre Hudson.  But he then goes on to admit:  "...if you're giving up your employment rights for £2,000 it's not something that would incentivise anyone. But if you're getting £50,000 worth of shares, for me it would be a good decision."

Well, yes.  Pretty obvious really.  I know I'm generalising, but the kind of people who could get £50,000 of shares are probably not the kind of people who are bothered about redundancy and unfair dismissal - they'll move on pretty quickly to another senior management role.  Yer average Joe/Jo will be asked to give up a large portion of their employment rights for what?  £2,000 of shares, probably in a startup,  probably not listed, possibly unsaleable, possibly worthless.  CGT savings on those?  Hmmm... let me think... Get sensible, George!

As for shares giving employees "a stake in the company" - well, nice in theory.  A bit like the theory that says that the shareholders of plcs make certain the company is run effectively and that directors are held to account.  In practice, I cannot imagine business owners ever ceding control in this way.

Does anyone else here watch The Thick of It and wonder at how uncannily accurate it is, sometimes?

John Stokdyk's picture

Another critical comment, from Bishop Fleming

John Stokdyk | | Permalink

 

Bishop Fleming’s head of tax Andrew Browne, who has assisted more than 100 companies to introduced employee-share schemes, sent us the following comments:

“This idea seems to have been scribbled on the back of a fag-packet, with no consideration of its unintended consequences.

“It only offers a capital gains tax saving:  but shares in a private company are not traded, and are notoriously difficult to value.  So the tax gain for employees may never crystallise, but they are expected to sacrifice a raft of employment rights to gain this questionable benefit?”

He explained that employees provided shares at less than their market value will be subject to an income tax and NI charge.  Therefore, not only could the employee be losing employment rights but also they could incur a tax charge for doing so.

“Taxation on employee share schemes is notoriously complex.  Therefore, although I welcome new incentives in this area, any changes need to be well thought out if they are to succeed in increasing employee share ownership.”