The latest statistics on the take-up of employee share schemes suggest that the number of tax advantaged plans has dropped since 2014. Why is this and does this reflect a longer-term decline in the popularity of employee ownership?
Research suggests that, when employees have a stake in the business they work for, this can improve the performance of the business, boost productivity levels, assist recruitment and increase staff retention.
HMRC offers five share schemes with tax advantages for both employees and employers. Company Share Option Plan and Enterprise Management Incentives (EMI) are for certain employees chosen at the discretion of the employer. Save As You Earn and Share Incentive Plans and Employee Ownership Trusts are for all employees.
In summary, the statistics show reductions in the cost of the tax relief (by 30 per cent), the number of tax advantaged plans (10,720 in 2015/16 from 11,460 in 2013/14) and in particular in the total number of flagship EMI schemes (from 9,860 in 2013/14 to 8,940 in 2015/16).
A number of reasons can be put forward to explain this data.
- First, it is only for tax-advantaged schemes registered with HMRC through the online filing system that, to be polite, has its limitations and ignores the many unregulated or unreported arrangements.
- It might also be that the reduction in the tax relief is an historic issue with comparatively higher share prices in the past reducing the gain and therefore the tax relief.
- The 2013/14 might be a ‘blip’ as the number of tax advantage schemes overall is still higher than 2012/13.
To be clear, share schemes are no less popular now than they have been in the past. Your supermarket till operator has probably been offered shares, the financial world is obliged to substantially replace bonuses with shares and employee ownership is growing in popularity. The UK offers opportunities to reward and retain staff through tax advantaged shares schemes and a competitive edge not found in other major economies.
The statistics do however reveal one big problem – complexity.
Despite two reports from the Office of Tax Simplification the five different schemes have different requirements for participating companies and individuals and the types of shares offered. Limits vary and disqualifying events are all different.
The prize is worthwhile though. Generally the tax-advantaged scheme gains are capital not income, potentially taxed at 10 per cent (as an alternative to 47 per cent with National Insurance and the employer's contribution of 13.8 per cent) and corporation tax relief.
If HMRC could only simplify the rules, we could see a dramatic increase in employee engagement which provides UK employers with a strong competitive advantage.
For more information please get in touch with Fiona Bell, or your usual RSM contact.