Ben Saunders: Employee ownership scheme has doubtful value

At the Conservative party conference in October, Chancellor George Osborne announced a new plan for employee ownership.

Then the Department for Business, Innovation and Skills rushed out its consultation on implementing employee owner status, with three weeks to respond.

A new class of employment status, ‘employee owner’, will be introduced. Such people can receive shares worth between £2,000 and £50,000, which will be exempt from capital gains tax. But these will be awarded in exchange for surrendering employment rights such as unfair dismissal (except in automatic or discriminatory situations), requesting flexible working, training and redundancy pay.

However, the shares will still be liable to income tax and national insurance contributions (NICs) under the normal rules. This means most employees will be looking at paying income tax and NICs up front for shares that may or may not bring dividends.

It is also expected the shares will not be eligible for schemes such as the Enterprise Investment Scheme, or any tax-advantaged employee share scheme.

It seems there will be no restrictions on the types of share in the scheme. Employee owners will need to consider what they are actually being offered in terms of rights to dividends, voting or capital on winding up. They will also need to think about how they can sell the shares and for how much.

The advantage to the employer is clear: a reduction in employment rights with no upfront costs. But the value to the employee owner looks questionable.

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Ben Saunders is a tax manager at Tolley