A new employment status – that of ‘employee shareholder’ – was introduced on 1 September 2013 by The Growth and Infrastructure Act 2013. Although it is still early days, this development does not yet appear to have generated much interest. Under the new regime, employee shareholders will receive £2,000 or more of shares in the business (of which the first £50,000 will be exempt from Capital Gains Tax on any increases in value, and the first £2,000 exempt from Income Tax and National Insurance at allocation) in exchange for forfeiting certain of their employment protection rights (primarily the right to claim unfair dismissal, except where the dismissal is automatically unfair or discriminatory, and the right to a statutory redundancy payment). The regime includes a number of employee safeguards:

  • employees must receive independent legal advice (paid for by the prospective employer) prior to entering into an employee shareholder agreement;
  • a 7-day cooling-off period during which the agreement is not valid;
  • employers must provide a written statement about the shares and the rights they carry; and
  • existing employees are protected from detriment and dismissal if they refuse to switch to an employee shareholder agreement.

On 1 September 2013, the Department of Business, Innovation and Skills (‘BIS’) published guidance intended to help employers who wish to make use of the new employment status. The BIS guidance is available at:

https://www.gov.uk/employee-shareholders

HMRC guidance on the tax treatment of employee shareholder shares and obtaining a share valuation of employee shareholder shares is available at:

http://www.hmrc.gov.uk/employeeshareholder/index.htm