Government reforms (3): Employee shareholders

employee shareholders - hand holding slice of cakeEmployee Shareholder status was introduced on 1 September 2013 and we can update you on the latest news:

Unsurprising unpopularityFor reasons we have set out in previous Newsletters, we remain highly sceptical as to the chances of success for the employee shareholder scheme (see our November and December 2012 newsletters in particular).  This scepticism has been shared by many and currently seems to be proving valid.  An article in the Daily Telegraph has reported that neither the British Chambers of Commerce (BCC) nor Department for Business, Innovation and Skills (BIS) had received any expressions of interest about the new scheme from businesses by the time of the scheme’s launch.

However, if you do remain interested, here’s some further news:

Government guidance:  The Government has produced guidance on employee shareholder status available here. This guidance includes a summary of the six conditions which need to be met in order to become an employee shareholder:

  1. The individual and the company must both agree that the individual will be an employee shareholder.
  2. The employer must give the individual fully paid up shares in the employer’s company or employer’s parent company, and they must be worth at least £2,000.
  3. The individual must not pay for the shares in any way.
  4. The employer must give the individual a written statement of the particulars of the status of employee shareholder.
  5. The individual must obtain advice from a relevant independent adviser on the terms and effect of the written statement. The company is required to pay for that advice, whether the individual accepts the job or not. The individual cannot accept or agree to an employee shareholder job until seven days have passed following receipt of the advice. The seven days commence on the day after the advice has been received.

The non-statutory guidance also raises a point not made clear previously: the guidance indicates that “in the majority of cases the shares will have to be paid out of distributable reserves”. This means that companies will need to issue shares by way of capitalisation of distributable profits, which may present difficulties for certain companies. This may further affect the level of interest in the new employee shareholder arrangements which is already pretty low.

HMRC guidance:  HMRC has produced guidance on the tax treatment of employee shareholder shares and obtaining a share valuation of employee shareholder shares.