The Government is increasing the number of tax incentives associated with employee share schemes in a bid to boost the number of John Lewis-style, employee-owned businesses in the UK. The independent Nuttall Review in 2012 concluded that companies operating in this model are more resilient during economic downturns, have a faster job creation rate and higher levels of commitment from staff. We look at some of the existing options available and two potential new reliefs currently under consultation.
Existing reliefs
- Share incentive plans (SIPs) – company shares offered by the employer that offer capital gains tax and national insurance contributions (NICs) reliefs. An employer can offer up to £3,000 of free shares in any tax year
- Partnership shares – allows employees to buy shares out of their pre-tax and NICs salary – up to £1,500 in any tax year, or 10 per cent of their overall salary, whichever is less
- Company share option plans – allows the purchase of up to £30,000 worth of shares at a fixed price, free of income tax and NICs on the difference between the price paid and what the shares are actually worth.
- Capital gains tax relief – applied when the controlling share of a business is sold into an indirect employee ownership structure, enabling entrepreneurs to sell their business to employees as opposed to external buyers
- An income tax and NICs exemption – allowing indirectly employee-owned companies to pay their employees a certain amount per annum free of income tax and NICs. There would also be an employer NICs exemption for the company.
Future reliefs (currently under consultation)
- Capital gains tax relief – applied when the controlling share of a business is sold into an indirect employee ownership structure, enabling entrepreneurs to sell their business to employees as opposed to external buyers
- An income tax and NICs exemption – allowing indirectly employee-owned companies to pay their employees a certain amount per annum free of income tax and NICs. There would also be an employer NICs exemption for the company.
Could your business benefit from an employee-ownership structure? Please get in touch with John Elliott, Tax Partner to discuss this further.
