On Wednesday this week the Chancellor announced that with effect from December 1st 2016 the Government will abolish the tax advantages associated with Employee Shareholder Status (also known as shares for rights or ESS) as he considers that shares issued to individuals acquiring this status have been used for tax planning purposes.
The effect is that the income tax and NIC relief available on the award of shares to an “Employee Shareholder” will no longer apply, and the capital gains tax exemption on the first £100k of gain on the sale of shares by an Employee Shareholder will also be stopped, in each case for any awards completed after December 1st 2016. In most cases, this means an immediate withdrawal because an award may only be completed at least seven days after the participating employee has been supplied with the award documents and then taken their own advice. The Government statement said:
“The status itself will be closed to new arrangements at the next legislative opportunity. This is in response to evidence suggesting that the status is primarily being used for tax planning instead of supporting a more flexible workforce”
ESS was introduced by George Osborne in September 2013, and involves an agreement between an employer and employee that the employee will surrender certain statutory rights of employment in exchange for free shares worth at least £2,000, free of income tax and NIC on the value of the shares awarded.
One attraction of ESS has been the facility to agree share value before an award with HMRC. However, this remains possible with discretionary option plans (EMI and CSOP) and all-employee share plans (Share Incentive Plan or SIP, and SAYE options).
If you have been considering ESS for your business and are unsure of what else you can do to put in place an employee ownership or option plan, please do get in touch for a chat and we shall do our best to shed some light for you.