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Employee shareholder status – update from the Autumn Statement

“…We also confirm tax relief for our employee shareholder scheme” – said the Chancellor, George Osborne, in Wednesday’s autumn statement. One line buried between announcements about small business rate relief and the energy bill, in which a key aspect of the Government’s employee ownership scheme was clarified. It was said so quickly that it was difficult to know if you heard it at all…or correctly.

To many, it will come as no surprise that he glossed over the details. The consultation that concluded last month revealed that out of 184 respondents, only three said they were likely to take up the scheme. As a quick reminder, the scheme, first heralded by the Chancellor at the Tory conference in October 2012, is the creation of a new employment status – employee shareholder status (previously known as employee owner status) – under which employees would give up certain of their employment rights (unfair dismissal, redundancy etc) in exchange for being given shares in their employing company of between £2,000 and £50,000. These shares would be exempt from capital gains tax on a sale.

So what did the Chancellor attempt to clarify? The government has now announced that it is examining ways to reduce the income tax and national insurance charge that would normally arise when the shares are acquired by the employee. In effect the first £2,000 of shares received under the scheme could be tax free.

In the face of so little enthusiasm for such a scheme, a tax sweetener to encourage participation is unsurprising, particularly if it helps to overcome the problems of trying to value the shares being offered in exchange for the rights being given up. Whether the tax sweetener will be enough to persuade the doubters remains to be seen and time is running out. The Treasury has indicated that the scheme will be law from 6 April 2013.

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