Share Based Payments and the Autumn Statement

31 January 2017

The Autumn statement presented by Philip Hammond did not hold as many surprises as perhaps expected. However, it was not without its reforms.

One casualty was Employee Shareholder Status (“ESS”). ESS has been abolished for arrangements entered into on or after 1 December 2016.

ESS was first introduced in September 2013 as a method of incentivising employees. It allowed, employees to receive shares in their employing company in exchange for giving up certain employment rights. Employees could not pay for these shares, rather they would receive the first £2,000 of value tax free and any value received in excess of this would be taxed as employment income. On exit the employee would receive the first £100,000 of proceeds tax free with the remaining proceeds being subject to Capital Gains Tax as normal.  The government have removed ESS as they believe that it was being used as a tax planning tool rather than for its intended purpose as an employee incentive.

Those that received ESS shares prior to 1 December 2016 will not be affected by this change and will still receive the tax advantages noted above. We will watch with interest to see if the UK or Scottish Governments will replace this initiative.

For companies that wish to provide share based incentives to employees, tax efficient arrangements are still available and could be used as an alternative to cash bonuses. The current market conditions in the North East have caused values of companies to be depressed which can make share based payments cheaper than in previous years. Two of the more common arrangements are as follows:

Enterprise Management Incentives. This allows companies to offer employees the option to purchase shares provided that certain criteria are met. Where the relevant conditions are met, the recipient employee will take advantage of Income Tax efficiencies when they exercise their option and on a disposal of the shares a Capital Gains Tax rate of 10% is normally available.

Growth shares. This involves employees being issued with a new class of share which normally accrues worth after a valuation hurdle is exceeded in the future. As a result, the employee is exposed to a limited Income Tax liability on receipt of the shares and pays Capital Gains Tax on disposal of the shares. Growth shares are used to allow employees to participate in the growth in value of a company.

For more information contact Katy Thomson, Tax Manager,

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