The UK Government has given the go-ahead for its controversial new proposal – the "employee-shareholder". This new form of employment status may be available for employers to offer to new hires from as soon as 6 April 2013

The Response to the Government's Consultation, published on 3 December, reveals that 92% of respondents viewed the plans in a negative or mixed way. Also, that unemployed people may lose their benefits if they reject an offer of work on an employee-shareholder basis, unless they have a good reason for doing so. The new status will be optional for existing employees, but both established companies and new start-ups can choose to offer this type of contract for new hires on a take it or leave it basis.

The Response indicates various changes to the original proposals (as summarised in our first update. In essence, the key features of the proposals (as they now stand) are as follows:

  • Employees will give up certain employment protection rights in return for shares in their employer's business (see previous update for detail)
  • Shares must have a real value of £2,000. There is no longer any maximum value
  • Shares up to a value of £50,000 will be exempt from capital gains tax
  • There will be income tax and NIC liabilities on receipt of shares but the Government is considering options to reduce these liabilities
  • Arrangements in relation to shares (such as rights attaching to them and conditions for forfeiture when leaving employment) will be a contractual matter between employer and employee. However, shares should be fully paid up and free of charge to the employee-shareholder
  • Shares can be issued by both the employing company and/or its parent company
  • Non-UK registered companies can benefit from these new arrangements
  • The employee-shareholder will be required to give 16 weeks' notice to return early from additional paternity leave, maternity or adoption leave
  • There will be an exclusion from the right to request flexible working except on return from parental leave

Next steps and what this means for employers

  • The Government will amend clause 23 of the Growth and Infrastructure Bill which deals with employee-shareholder status, but this may be subject to further change as the debate continues
  • The Government is considering options to reduce income tax and NIC liabilities on issue of shares. It is expected that this will be dealt with in the Finance Bill
  • Draft legislation on the CGT exemption will be published on 11 December
  • The Government will publish guidance covering the three employee statuses: employee-shareholder, employee and worker. There will also be guidance on the employment law and tax consequences
  • Guidance will be given on share valuation and forfeiture but the Government says that it intends to "explore options and rules and, if appropriate, bring forward changes" (whatever that means!)
  • The requirement to give 4 weeks' notice in order to make a formal request for flexible working on return from parental leave is being reviewed and may change

For more information on what these proposals mean to employers, see our previous client update on this topic. It is clear that crucial information (such as detail on the tax implications) is still missing from the proposals and without this, employers cannot really begin to make an informed choice on whether to go ahead with designing and implementing a new scheme to offer employee-shareholder status.

As soon as the CGT, income tax and NIC proposals are clarified, and any further information is revealed on share valuation and forfeiture, we will let you know. At such time, Clyde & Co will be able to offer advice and training on how the new proposals will work and whether they would be suitable for your organisation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.