This was intended to encourage employee share ownership by providing tax incentives for those becoming employee shareholders. However, in return, employee shareholders have to give up some of their employment rights.
There is a complex process that has to be followed to create employee shareholder status. In particular, employee shareholders have to be given detailed information about their share award and the rights that they are giving up.
They then have to receive independent legal advice on the proposed arrangement and must also be given the benefit of a seven day “cooling off” period before the arrangement can be finalised.
Employee shareholders must receive at least £2,000 worth of shares in their employer (or a parent company), at no cost to them. Assuming various conditions are met, there will not be a liability for income tax or national insurance contributions in relation to the grant of shares, and capital gains tax will not be payable when the shares are sold.
In return, employee shareholders give up various employment rights, most significantly the right to claim unfair dismissal (apart from in relation to certain dismissals) and the right to a statutory redundancy payment.
We are experienced at advising on employee shareholder status. In particular, we can help ensure the implementation of employee shareholder status is effected correctly so as not to undermine the tax efficiency of the arrangement.
Further, we can advise employees’ on the rights they are giving up and whether, as a result, they are sufficiently protected by their contractual notice periods which become much more important in the absence of unfair dismissal rights.