Branded at the time as a way of creating a flexible workforce, the government quietly shelved its plan for creating so-called owner-employees in last week’s Autumn Statement.
First proposed in 2012 and introduced in 2013, the plan was to allow companies of any size to give employees between £2,000 and £50,000 of shares that were exempt from capital gains. However, to qualify, employees had to give up a raft of hard-won rights, such as unfair dismissal and redundancy.
Thompsons predicted at the time that the plan would allow companies to fire staff at will; and that sole traders and partnerships would use it to save tax. Even the business organisation, the CBI, called it a niche idea that was unlikely to be relevant or attractive to many businesses.
Statistics published recently by HMRC seemed to confirm what most (bar the government) had thought. The figures showed that from September 2013 (when employee shareholder schemes were introduced) to April 2014, only 40 companies had issued them to 230 employees. The total unrestricted market value of the shares awarded was £2.8 million (£11,800 per employee).
So the government added a clause to the Autumn Statement last week announcing that “The tax advantages linked to shares awarded under ESS will be abolished for arrangements entered into on, or after, 1 December 2016. The status itself will be closed to new arrangements at the next legislative opportunity. This is in response to evidence suggesting that the status is primarily being used for tax planning instead of supporting a more flexible workforce.”
Gerard Airey of Thompsons stated: “The statistics suggest that this working model is quite rare. Once the tax advantages under these schemes are abolished it will be interesting to see if this model will be utilised going forward.
I suspect it’s unlikely and that individuals would rather enjoy the hard earned employment protections such as rights to unfair dismissal and redundancy pay.”
The government has recently seemed to backtrack on its plans to include workers on boards. In a speech to the CBI, Teresa May made clear that it would not be mandatory, more a question of “finding a model that works”.
The government is also facing a backlash from business over its plans to introduce other corporate governance reforms such as binding shareholder votes on pay and the publication of pay ratios between chief executives and their employees.