- New legislation came into effect from 1 September 2013 which introduced a new employment status in the UK, that of ‘Employee Shareholder’. The legislation will be of particular interest to those working in UK start-up companies (subject to valuation*) and those companies which are backed by private equity, two areas which TMF Group in the UK are very experienced in dealing with, not only from an employee perspective, but also from a general company compliance perspective in relation to company secretarial, accounting and tax compliance matters.
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The status of employee shareholder comes with large tax benefits:
- the first £2,000 worth of employee shares will not be liable to either income tax or national insurance
- there is a capital gains tax exemption of up to £50,000 on the first disposal of shares acquired via the employee shareholder regulations.
The status of employee shareholder can be attributed to both new employees and to existing employees who agree to alter their status.
Employee shares acquired can be either in relation to the employing company or its parent company, providing that the company is registered either in the UK or abroad or is a Societas Europaeas.
In accepting the status of employee shareholder, the employee will accept a reduction in certain employment rights relating to such things as, but not limited to, the right to request flexible working, the right to receive statutory redundancy and the right to claim unfair dismissal in certain circumstances, for example.
An employer must not force an employee to accept the status of employee shareholder and must also pay for independent legal advice to be given to any employee who is interested in the status, regardless or not of whether the status is ultimately accepted.
In the event that shares are issued to an employee shareholder with a value in excess of £2,000, the excess value will have a reporting requirement either through the payroll (in relation to readily convertible assets – RCA’s) or via an employee’s personal self-assessment tax return (in relation to non-RCA’s). TMF Group UK is able to provide assistance in both areas to ensure compliance for both the employer (in relation to reporting and tax compliance obligations) and the employee in these circumstances. Equally, TMF Group UK is able to assist with the compliance requirements of reporting any taxable capital gains arising.
An employer may consider that the improved loyalty and productivity that can be achieved by introducing employee shareholder status can be equally achieved by introducing other share option schemes which carry tax benefits. TMF Group UK has a very experienced team dealing with the compliance requirements of share schemes who are able to assist employers in this respect.
Please contact the specialist team in the UK to discuss further via firstname.lastname@example.org.