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Employee shareholders

Employee shareholders

So employees will be able to enter into an agreement with their (corporate) employers to give up certain employment rights in exchange for a free issue of shares with a market value of £2,000 (see S.27 growth and Infrastructure Bill).

So how do they get valued? What happens if some smart arse later established that the value was incorrect and they were only worth £1,999? Agreement nul and void? Employee gets their rights back?

What about the tax consequences?

The employee is receiving money's worth taxable under S.62 and there's no exemption, but presumably the company gets a CT deduction.

Assuming the shares are an RCA, am I right in thinking that there's no PAYE or NI and it's just reported on from 42 and the employee's own Tax Return.

What happens if HMRC then dispute the valuation?

Is it possible to agree valuations with HMRC up front?


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07th Feb 2013 14:25

To answer the last question first ...

... in Mr Fawlty style - NO.

But I'll qualify that. HMRC will not agree in advance valuations in relation to 'Form 42' matters. But this is new legislation, so I don't know if one will be able to reach advance agreement for the specific purpose of s205A.

If the shares are subsequently found to be worth less than the stated amount, I would thought that the consequences would depend on the precise terms of the agreement. But it certainly appears from the draft legislation that if the shares are agreed to be worth less than £2k then the employee will not be an employee shareholder and that s/he would continue to have the various rights referred to.

As for RCA treatment, if they are RCA's then PAYE ought to be applied. But securities that would otherwise be RCA's are not RCA's if a CT deduction is available. Since such a deduction ought to be available here, the securities will not be RCA's, so your analysis re self-assessment is correct.

Apologies for any unnecessary verbosity.


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By blok
07th Feb 2013 14:43


sorry to be blunt but - the whole scheme is a waste of time and i would be surprised if anyone in their right mind ever thought it a good idea.

only my opinion of course

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07th Feb 2013 15:41


Yes I meant to say assuming the shares aren't an RCA.  I agree it's (potentially) a waste of time.

Do you think a SIP (S.488/Sch 2) would work?  All employees can participate in the scheme and receive £2,000 of shares, so they're participating on equal terms.

I'm not sure that you'd want to do it, but I'm just thinking out loud.

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07th Feb 2013 16:10

Depends, George

On what you mean by "would work".

SIPs do work, but only for appropriately-sized companies. They are not cheap to set up, and there is one rule of thumb which suggests that costs would be prohibitive for anything less than 50 employees.

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07th Feb 2013 16:48


I was just thinking could a SIP be used to issue (and only issue) £2,000 of free-shares to any employee who agreed to give up the required employment rights?  That could possibly be attractive to a large employer.  You've still got the take up problem, of course.

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