Breaking News: Employee Shareholder Status to be abolished
Amongst the various rate changes to income tax and national insurance contributions announced this afternoon, the Chancellor has also slipped in the abolition of Employee Shareholder Status (ESS). This was a scheme which allowed companies to issue shares to employees in return for the employees signing away significant employment rights.
The advantage of ESS schemes was that the employee had income tax relief on the shares when received and, if the company were sold in the future, the employee paid no tax on the increase in value between the purchase price and the sale price.
The purpose of ESS was to encourage employee ownership and incentivisation, in particular in start-up and tech businesses; however, the Chancellor has today concluded that the schemes have been used by the better off to avoid tax.
As a result, the ESS scheme is to be removed in two stages. First, there will be no tax relief for any ESS schemes entered into on or after 1 December 2016 and ESS itself will be abolished “at the next opportunity”.
As a further sting in the tail, although the change comes into force from 1 December, that only applies to employees who had taken advice on an ESS scheme before the very specific cut-off time of 1.30pm today (23 November 2016) and so, in reality, for most people these schemes are no longer available.
Companies looking for advice on the effect of this on their ESS schemes please contact Amanda Brockwell. Existing employee shareholders looking for advice on their employment status should please contact Holly Cudbill.