This Content Was Last Updated on January 9, 2016 by


Article contributed by ACCA

New legislation will see more support for employees who adopt the ‘employee shareholder’ status.

The 2013 Budget announced that the government will do more to support employee ownership. The Budget states that the government supports employee ownership as a business model, and welcomes work by the Implementation Group on Employee Ownership to take forward the recommendations of the Nuttall Review.

Last year, the government announced the proposed introduction of a new ‘employee shareholder’ employment status. Shares received on or after 1 September 2013 by individuals adopting ‘employee shareholder’ status will be subject to new legislation to be brought in by Finance Bill 2013.

Currently employees are subject to income tax and national insurance contributions (NICs) on employment income, which includes employment-related securities awarded to a person by reason of their employment. The current law also imposes a NICs liability on employers.

The new measure will reduce or eliminate the income tax and NICs due by deeming that employees have paid £2,000 for the shares.

Additionally, under current legislation, when the employee eventually sells the shares, any gain made on that sale will be subject to capital gains tax (if it exceeds the annual exempt amount, currently £10,600). The second part of the new measure will exempt any capital gains on the disposal of up to £50,000 of shares acquired by an employee shareholder under an employee shareholder agreement.

In order to further incentivise growth of the sector, the government is providing £50m annually from 2014-15. This will be used to respond to recommendations from the Nuttall Review and other relevant organisations which aim to encourage employee ownership.

This will include funding for the introduction of a capital gains tax relief on the sale of a controlling interest in a business into an employee ownership structure.

Consultation on this measure will take into account the progress of work by BIS and the Implementation Group to develop an ‘off the shelf’ employee owned company model, with the intention that the new capital gains tax relief will be introduced in Finance Bill 2014. The government will also look at further incentives in this area, including measures targeted at employees through indirect ownership models.

The government wishes to reflect the progress that has been made by the Implementation Group when considering further incentives to support the sector, and will consult after Budget on a range of incentives and support, including the CGT relief on sale of a controlling interest.