and share alike
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Do you want to make your drivers love you, work harder and help you save tax? Give them a share in the company! John Davies explains how.
Anumber of employer share schemes have been around since the 19705. The approved profit sharing (APS) scheme was introduced in 1978; it was followed by the save as you earn (SAYE) and company share option (CSOP) programmes. However none of these have been particularly popular—the US rate of employee share ownership remains twice that of the UK.
The government supports employee share ownership, citing research in the UK and the US which indicates a clear link between employee share ownership and improved productivity, But it recognises that the existing schemes do not offer sufficient opportunity for all workers in an organisation to participate.
With this in mind, the essence of the new all-employee share plan (ASEP) scheme is that it must be made available to all employees, including part-timers. Companies are entitled to set a qualifying period of employment, hut only to a limit of IS months.
11 Elements
Under the AS EP rules, any corn • pany is entitled to devise a scheme which involves the issue of one or ti 0 more of three share elements.
n The first of these three ele • ments is an issue of free shares. A company may give up to L3,000 worth of its shares to employees in each tax year, free of tax and national insurance contributions (Nil C).
The second element comprises partnership shares. Employees will be able to buy these shares out of their pre-tax and NIC income, up to a limit of Li25 per month (or to% of their overall salary, whichever is less).
The third element is matching shares. When an employee buys partnership shares the company will be able to issue up to two free matching shares with each partnership share, Employers are entitled to make available any or all of these three elements under their ASEP.
Each scheme will need to apply a holding period to the shares, so shares issued under the scheme cannot be withdrawn for between three and five years from the date that the shares are awarded unless an employee is leaving the company.
If shares are withdrawn between three and five years after they have been awarded, the employee will be required to pay income tax and NICs on the lower of the market value of the shares on award or the market value at the date of withdrawal. But if the shares are kept in the plan for five years or more they become the property of the employee and there will be no
income tax or N IC liability.
Dividends received on sl in the plan will also be tax provided that those dividenc used to acquire additional sl in the company—so-called dend shares. There will be n( ital gains tax (CCT) liability c withdrawal of shares, as la they are sold immediately.
As mentioned, the con ture of the ASEP is th employees must be entid take part. Companies will for example, be allowe restrict the award of free sl to employees who already shares in the company.
Employers
However, in devising the i■ the government was caret offer employers a degree of bility when putting together own plans. For example, the not be obliged to issue shar an equal basis across the b Instead they will be entitl give more free shares to employees than others, on c tion that the various award justified by a fair and obj( assessment criteria.
Among other things, the teria state that perforn measures must relate tc business results of the indiN or department concerned that notification of such sures must be available t staff. Only free shares ca awarded to employees for i ing performance targets.
Corporation tax relief w available to the employer, E as a deduction from tri profits or as manage expenses, for start-up costs ciated with the scheme. Thi take into account the gross allocated by employees tc partnership shares, and the ket value of the shares a time they are acquired b plan trustees.
To qualify for these tax a tages, each ASEP mus approved by the Inland Rev Employers should submit posals to the Reve Employee Share Scheme U Room 76, New Wing, Son House, London WC2R 'LB details of the ASEP are ava on a Revenue guidance k IR 177, which is available the Revenue's web sit www, inland revenne.gov,uk
• John Davies FCIS is He Business Law at the Associ of Certified Chartered Accour