On 8 November 2022, the Employee Share Ownership (Reform) Bill (“Bill”) was introduced to the UK Parliament for its first reading.
The intention of the Bill is to update two existing share ownership schemes, namely the share incentive plan (“SIP”) and the save-as-you-earn scheme (“SAYE” or “Saveshare”) and to introduce a new employee share scheme allowing preferential access for lower income workers.
The Bill aims to modernise SIP and SAYE, introduced in 2000 and 1980 respectively, to reflect the changing employment trends currently contributing to their reduced uptake and obsolescence.
For example, under a SIP employees can currently receive up to £3,600 of free shares in any tax year; however, if the employee withdraws those shares before the 5 year holding period ends, the tax advantages of the SIP are not fully realised. The Bill would maximise tax efficiency by reducing the holding period from 5 years to 3 years, acknowledging the reality that the length of time an employee (particularly a younger employee) spends at a company has significantly reduced over time.
Another problem identified is that SIP and SAYE are currently only available to those on pay-as-you-earn (“PAYE”) meaning they are not available to employees in less regular work such as the gig economy. The Bill further proposes to introduce a new employee share scheme which would not require PAYE monthly contributions, enabling such workers to have access to the opportunity to participate in share schemes. This new share scheme would enable employers to award free shares to their employees which could be exercised at a discount value after 1 year, which is envisaged to be more attractive to younger employees.
Other provisions of the Bill include the introduction a requirement on companies to publish the type of employee share ownership plans they operate and the level of employee take up, and a requirement for the Treasury to carry out a consultation with relevant bodies with a view to modernising employee share ownership.
The Bill is scheduled for a second reading on 3 February 2023.