As of 1 September 2013, employers are now able to offer their employees a new type of employee status known as an employee shareholder. This new status could be a tax efficient way of giving your employees an interest in the company to incentivise and motivate your staff.
This status means that a company is able to offer their employees the option to exchange some of their employment rights for a minimum of £2,000 worth of shares in the company. The rights in question include rights regarding statutory redundancy pay, unfair dismissal rights (excluding discrimination or health and safety) and the statutory right to request flexible working. The company can choose to offer rights which are more generous than those provided for in statute if they so wish.
The first £2,000 of shares received by the employee are free from income tax, but any shares above this amount will be subject to income tax and potentially National Insurance. However, when the employee sells the shares, any gain they make will be exempt from capital gains tax.
In order to accept an offer of employee shareholder, the employee must receive advice from an independent advisor before accepting the offer, both on the employment rights they will lose and on the rights and restrictions they will receive on the shares. The company is required to pay for this advice and the employee cannot accept the offer until seven days after this advice has been received.
The company cannot receive any payment in return for the shares. However, the company will be able to claim a corporation tax deduction for the cost of the independent advice and relief will also be given for the value of shares given to the employee shareholder.
