How to decide whether or not to make use of employee-shareholder status
Author: James Jaques
NOTE:The tax advantages linked to shares awarded under employee-shareholder agreements have been abolished for arrangements entered into on or after 1 December 2016 (see Tax treatment of employee-shareholder shares).
The Chancellor of the Exchequer also announced, in the Autumn Statement 2016, that the status itself will be closed to new arrangements at the next legislative opportunity, in response to evidence that it is primarily being used for tax-planning purposes by high-earning individuals. On 20 June 2019, the Department for Business, Energy and Industrial Strategy confirmed to XpertHR that this is still the Government's intention.
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- Understand the meaning of employee-shareholder status and that specific conditions must be met for an individual to be an employee shareholder.
- Be aware that existing employees have protection from being dismissed or subjected to a detriment for refusing to become an employee shareholder.
- Be aware of which employment rights are given up by employee shareholders and to which employment rights they remain entitled.
- Consider how the company would value shares issued to employee shareholders, to ensure that they receive shares worth at least £2,000.
- Consider the terms of any shares that would be issued to employee shareholders, including terms relating to voting rights and dividend rights.
- Check whether or not shareholder approval would be required for new shares to be issued.
- Be aware that the shares must be fully paid up and understand the implications of this for the company, bearing in mind that the employee shareholder cannot give further consideration.
- Be aware of the procedure that must be followed when agreeing shareholder status, including the requirement for:
- Understand the tax breaks linked to employee-shareholder status and the circumstances in which these will be of benefit to the employee shareholder.
- Consider the effect on the company's reputation as an employer of asking employees to accept employee-shareholder status, or requiring new employees to be employee shareholders.
- Consider whether or not there are other more suitable ways to offer shares to employees, while accessing similar tax advantages.