Income tax and NICs will apply to initial transfer of shares, says Treasury
The government’s plans for a new capital gains tax exemption for ‘owner-employees’ who forgo some of their employment rights could meet opposition from the European Commission, and HM Treasury confirmed today that the initial transfer of shares to an employee will be chargeable to income tax and national insurance contributions.
Some businesses welcomed yesterday’s announcement at the Conservative party conference but tax professionals have suggested that the scheme may have limited appeal. Most individuals are already entitled to an annual CGT exemption of £10,600.
The Daily Telegraph quoted Ed Stacey, head of employment at PwC Legal, as saying: ‘The removal of the right to bring an unfair dismissal claim would, as matters currently stand, breach EU law where that claim for unfair dismissal arises under EU-based legislation: for example, working time regulations, maternity rights and parental leave. To avoid such a breach, the proposed legislation would need to enact a new remedy for claims that emanate out of EU law and so a very significant change in employment law will be required.’
Stacey added: ‘We could end up with a two-tier system where some employees lose significant employment rights while others are fully protected.’
The government will consult later this month on a new kind of employment contract for ‘owner-employees’, who will be entitled to be given between £2,000 and £50,000 of CGT-free shares in exchange for giving up redundancy and other employment rights.
It appears that there was no consultation before George Osborne made the announcement, which concluded with the proclamation: ‘Workers of the world unite.’
'Headline grabbing'
There was a negative reaction on Twitter from several tax professionals, weary at the prospect of additional complexity just weeks after publication of the longest ever Finance Act.
Paul Aplin said: ‘We will never have sensible, robust tax policy while the current proclivity for headline grabbing on tax prevails at (all) party conferences.’ Aplin is the chairman of the ICAEW Tax Faculty’s technical committee.
Andrew Brooks, an independent tax adviser, was less than positive about the prospect of professional advisers ‘having to take responsibility for advising the average employee on giving up rights’.
Mike Truman, editor of Taxation, tweeted: ‘Give up all your employment rights, get unsaleable shares in a private company. Stupid idea from Planet Stupid?’ He revealed that the Treasury had said tax and NICs would be due on the initial transfer of shares. Yesterday’s joint Treasury/BIS press release had not mentioned income tax or NICs.
Patrick Stevens, tax partner at Ernst & Young, said the new scheme was ‘an interesting and novel idea which, in theory, should strengthen the armoury of the UK’s high growth’. But the big question was whether employees would be attracted without knowing the potential gain or tax benefit in advance.
‘For example, if the employer does badly, the shares that are being given to the employee could become worthless and therefore would be of no advantage. The CGT exemption would also then be irrelevant. Even if the “gain” on the share price is relatively small, they may not have been liable for CGT anyway – most people have a tax free annual CGT allowance of up to £10,600.
‘On the other hand, if the shares sky rocket, increasing in value, there could be a substantial profit for the employee which would also be tax free. This would be of particular benefit to higher rate taxpayers, who are subject to a 28% CGT rate. Employees will need to carefully consider their options but, for some, it will be a gamble either way.’
Carol Dempsey, tax partner at PwC, said it was good to see that the government recognised the positive benefits of employee share ownership. But the scheme ‘may have limited appeal unless providing free shares to employees is of clear value to the business’.
Bill Cohen, head of share plans at Deloitte, said that if the scheme was to be a success it was important that ‘employees who receive shares in a private company will not be subject to tax until they can sell their shares’.
The devil would be in the detail, he said. ‘Will employees be willing to give up valuable employment rights in order to take a share in their employer, even if it can be structured tax efficiently? And will employers, particularly smaller private companies, want to give employees a share in the company in return for greater flexibility?’
Chris Blundell, employment tax partner at MHA MacIntyre Hudson, said: ‘This is a welcome change for small to medium sized businesses who want to give shares to decision makers. Unquoted companies have a perennial problem of passing shares to employees without creating an income tax bill. This appears to be a partial solution to this.’
‘Uncertain financial gain’
The UK has ‘one of the least regulated’ labour markets in the world, and there is little evidence to suggest that employment regulation is preventing small businesses from taking people on, according to Mike Emmott, employee relations adviser at the Chartered Institute of Personnel and Development (CIPD).
Emmott said that according to the government’s own research, unfair dismissal ‘does not even figure’ in a list of top ten regulations discouraging them from recruiting staff.
‘Employees have little to gain by substituting their fundamental rights for uncertain financial gain and employers have little to gain by creating a two tier labour market,’ he said. ‘Employee ownership works best where it is accompanied by great management, rather than enhanced job insecurity.’
Income tax and NICs will apply to initial transfer of shares, says Treasury
The government’s plans for a new capital gains tax exemption for ‘owner-employees’ who forgo some of their employment rights could meet opposition from the European Commission, and HM Treasury confirmed today that the initial transfer of shares to an employee will be chargeable to income tax and national insurance contributions.
Some businesses welcomed yesterday’s announcement at the Conservative party conference but tax professionals have suggested that the scheme may have limited appeal. Most individuals are already entitled to an annual CGT exemption of £10,600.
The Daily Telegraph quoted Ed Stacey, head of employment at PwC Legal, as saying: ‘The removal of the right to bring an unfair dismissal claim would, as matters currently stand, breach EU law where that claim for unfair dismissal arises under EU-based legislation: for example, working time regulations, maternity rights and parental leave. To avoid such a breach, the proposed legislation would need to enact a new remedy for claims that emanate out of EU law and so a very significant change in employment law will be required.’
Stacey added: ‘We could end up with a two-tier system where some employees lose significant employment rights while others are fully protected.’
The government will consult later this month on a new kind of employment contract for ‘owner-employees’, who will be entitled to be given between £2,000 and £50,000 of CGT-free shares in exchange for giving up redundancy and other employment rights.
It appears that there was no consultation before George Osborne made the announcement, which concluded with the proclamation: ‘Workers of the world unite.’
'Headline grabbing'
There was a negative reaction on Twitter from several tax professionals, weary at the prospect of additional complexity just weeks after publication of the longest ever Finance Act.
Paul Aplin said: ‘We will never have sensible, robust tax policy while the current proclivity for headline grabbing on tax prevails at (all) party conferences.’ Aplin is the chairman of the ICAEW Tax Faculty’s technical committee.
Andrew Brooks, an independent tax adviser, was less than positive about the prospect of professional advisers ‘having to take responsibility for advising the average employee on giving up rights’.
Mike Truman, editor of Taxation, tweeted: ‘Give up all your employment rights, get unsaleable shares in a private company. Stupid idea from Planet Stupid?’ He revealed that the Treasury had said tax and NICs would be due on the initial transfer of shares. Yesterday’s joint Treasury/BIS press release had not mentioned income tax or NICs.
Patrick Stevens, tax partner at Ernst & Young, said the new scheme was ‘an interesting and novel idea which, in theory, should strengthen the armoury of the UK’s high growth’. But the big question was whether employees would be attracted without knowing the potential gain or tax benefit in advance.
‘For example, if the employer does badly, the shares that are being given to the employee could become worthless and therefore would be of no advantage. The CGT exemption would also then be irrelevant. Even if the “gain” on the share price is relatively small, they may not have been liable for CGT anyway – most people have a tax free annual CGT allowance of up to £10,600.
‘On the other hand, if the shares sky rocket, increasing in value, there could be a substantial profit for the employee which would also be tax free. This would be of particular benefit to higher rate taxpayers, who are subject to a 28% CGT rate. Employees will need to carefully consider their options but, for some, it will be a gamble either way.’
Carol Dempsey, tax partner at PwC, said it was good to see that the government recognised the positive benefits of employee share ownership. But the scheme ‘may have limited appeal unless providing free shares to employees is of clear value to the business’.
Bill Cohen, head of share plans at Deloitte, said that if the scheme was to be a success it was important that ‘employees who receive shares in a private company will not be subject to tax until they can sell their shares’.
The devil would be in the detail, he said. ‘Will employees be willing to give up valuable employment rights in order to take a share in their employer, even if it can be structured tax efficiently? And will employers, particularly smaller private companies, want to give employees a share in the company in return for greater flexibility?’
Chris Blundell, employment tax partner at MHA MacIntyre Hudson, said: ‘This is a welcome change for small to medium sized businesses who want to give shares to decision makers. Unquoted companies have a perennial problem of passing shares to employees without creating an income tax bill. This appears to be a partial solution to this.’
‘Uncertain financial gain’
The UK has ‘one of the least regulated’ labour markets in the world, and there is little evidence to suggest that employment regulation is preventing small businesses from taking people on, according to Mike Emmott, employee relations adviser at the Chartered Institute of Personnel and Development (CIPD).
Emmott said that according to the government’s own research, unfair dismissal ‘does not even figure’ in a list of top ten regulations discouraging them from recruiting staff.
‘Employees have little to gain by substituting their fundamental rights for uncertain financial gain and employers have little to gain by creating a two tier labour market,’ he said. ‘Employee ownership works best where it is accompanied by great management, rather than enhanced job insecurity.’
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