Yesterday’s Autumn statement included several significant measures in the field of employment law but most important of all was the Chancellor’s announcement that employee shareholder status (ESS), introduced by the Coalition Government in September 2013, is to be closed to new entrants “at the earliest opportunity”.
After a slow start, ESS arrangements have grown in popularity over recent years. They are an effective tax planning vehicle for entrepreneurs and senior management teams investing in fledgling businesses, and have been particularly popular with a number of private equity houses.
Under the current rules on ESS, the employee shareholder must forego a number of employment protections, including the right to claim ‘ordinary’ unfair dismissal, in return for income and capital gains tax breaks on a minimum investment of £2,000 shares. The tax relief on ESS shares acquired under an ESS agreement has come under scrutiny before; the CGT relief was reduced following the 2016 budget. However, after yesterday’s announcement, we now know the tax relief will be removed altogether for ESS arrangements entered into on or after 1 December 2016.
So, if you’re considering an investment in a company or have had discussions about entering into an ESS arrangement with a business, the clear message from yesterday’s announcement is get in quick because ESS arrangements will not be around for very long, and the tax efficiency will disappear in less than a week.
Torque Law can advise on alternative and creative ways to incentivise and retain your top staff – please just give Tiggy Clifford or Emma Whiting a call.