Employee shareholder is a new employment status, available from 1 September 2013. Employee shareholders have different employment rights to employees, and are awarded at least £2,000 worth of shares in their employer or a parent company. There is no requirement for businesses wishing to offer an employee shareholder contract to obtain HM Revenue and Customs approval or agreement.
For detailed information on what to think about and do if you wish to offer or consider accepting an employee shareholder contract see the guidance from the Department of Business, Innovation and Skills.
There are special tax rules for shares received under an employee shareholder agreement, which will apply from the launch of the new employment status on 1 September 2013.
Providing all of the statutory conditions for employee shareholder status are met, or an employee shareholder agreement satisfies the conditions set out in Department for Business, Innovation & Skills guidance, HMRC do not anticipate challenging an individual's status as an employee shareholder for the purposes of these special tax rules. This includes cases in which statutory employment rights foregone under an employee shareholder agreement are reinstated by contract.
However even when a person is an employee shareholder, these special tax rules will not apply in certain cases, for example where the employee shareholder and anyone connected to them have a 'material interest' in the company because they hold 25 per cent or more of the voting rights in that company . Further details are set out in the more detailed tax guidance, which can be accessed from this page.
Income Tax and NICs is not usually chargeable on the first £2,000 of share value received by an employee shareholder. This is because the employee shareholder is deemed to have made a payment of £2,000 for the shares. The normal rules for the taxation of employment-related securities apply to any value received in excess of £2,000.
The 'deemed payment' only applies on the first occasion on which an individual acquires 'qualifying shares' under an employee shareholder agreement with their employer, and is subject to the employee shareholder not having a 'material interest' in the company.
For more information see the share schemes technical guidance (PDF 105K)
Before an individual agrees to be an employee shareholder they must receive advice from an independent adviser on the terms and effects of the employee shareholder agreement. The company is required to meet reasonable costs for that advice, whether the individual accepts the employee shareholder position or not, but this will not be treated as giving rise to a taxable benefit.
For more information see the benefit exemption technical guidance (PDF 105K)
There will usually be a Capital Gains Tax exemption for gains on the disposal of up to £50,000 worth of shares received by the employee shareholder. This is subject to the employee shareholder not having a 'material interest' in the company.
For more information see the capital gains technical guidance (PDF 51K)
Businesses awarding employee shareholder shares may propose a share valuation for tax purposes to HMRC's Share and Assets Valuation team in advance of this award. Where possible, HMRC will agree this valuation, and this agreement will be effective for 60 days
For more information see the shares and assets valuation guidance
Employers who have awarded employee shareholder shares will need to provide details on HMRC Form 42 (Employment-related securities) at the end of the relevant tax year. The form will be amended to include a new section relating to these share awards.
Corporation tax deductions may be claimed:
The amount of relief available on the acquisition of employee shares is usually the market value of the shares acquired by the employee, less any consideration given. The relief is due when the shares are acquired and there is a matching employment income charge.
Where an employee shareholder is deemed to have paid £2,000 for their shares, this deemed payment is ignored for the purposes of calculating any corporation tax relief available. The amount of relief available is not therefore reduced by the £2,000 deemed payment.
Employees will usually not have to pay tax when their employer pays for advice they receive about a proposed employee shareholder agreement. But a company can get a corporation tax deduction against taxable profits when they meet the costs of this advice, as long as these costs are incurred wholly and exclusively for the purposes of its trade.