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‘Employee shareholder’ to go ahead

Employee shareholder to go ahead

A controversial new employment status, ‘employee shareholder’, will now become law after the House of Lords accepted final concessions.

The idea is to encourage employee share ownership under a ‘rights for shares’ scheme whereby those adopting the status receive tax advantaged shares in exchange for giving up certain employment rights.

Employee shareholder status is intended to be a new category of employment. An employee who becomes an employee shareholder will be allotted or issued with at least £2,000 worth of shares in their employer’s company. The shares will form the consideration element of the employee shareholder agreement, and in return for them the employee shareholder will forfeit some of their employment rights.

The first £2,000 worth of shares is free of tax and national insurance contributions. Corporation tax relief is available for the cost of the shares allotted under the agreement. Any gain on the disposal of up to £50,000 of employee shareholder shares is exempt from capital gains tax.

The tax advantages are subject to a number of conditions and there are various antiavoidance measures to prevent exploitation. The shares come at a price. Those who adopt the new employee shareholder status are
required to forfeit certain employment rights in exchange for the shares. This has proved to be controversial.

For example, an employee shareholder can be unfairly dismissed (except where the dismissal would be automatically unfair, such as for whistle-blowing) and also does not have the right to:

  •  request time off for training;
  •  request flexible working;
  •  receive a redundancy payment.

In addition, an employee shareholder must give 16 weeks’ notice, rather than the usual eight weeks, of their intention to return to work early after maternity or additional paternity leave.

The House of Lords finally accepted a concession requiring an individual to obtain advice from a relevant independent adviser before entering into the contract, clearing the way for the proposals to become law.

The intended start date for the new employee status is 1 September 2013. This is, however, dependent on the necessary legislation making it to the statute books.


This article originally appeared in the Summer edition of Tayler Bradshaw's accountancy newsletter Money Matters. The information represents Tayler Bradshaw's understanding of law and HM Revenue & Customs practice as at May 2013.

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