Policy Recommendations ‑ UK Share Plan Reform

Proposals for Share Plan Policies are guidance notes issued by the Employee Share Ownership Centre on how the government can update its policies affecting employee equity.

SAYE Sharesave And Share Incentive Plan (SIP)

Widen eligibility in both  

  • Entitlement to participate in tax advantaged share plans depends largely on employment status – companies may not be able to offer share schemes to certain growing sections of their workforce, because individuals in these sub-sets do not fit into the definition of ‘employee’ as set out in legislation. Therefore, review legislation e.g. ITEPA 2003, to enable more of the workforce to be eligible. Hence allow all IR35 deemed employees to participate in all available qualifying tax-advantaged schemes. 
  • Auto enrolment could be introduced for payrolls in companies operating broad based employee share schemes, with the proviso that any or all employees could, on demand, opt out from such participation. 

SAYE – Sharesave – Option price ‘look-back’ clause 

  • The option price and the number of shares under option are set at launch. A ‘look-back’ feature would enable the option price to be reset to 80 percent of the market price one month prior to the maturity date, if the starting option price were underwater at that time. The ‘maximum’ number of shares under option would remain as at launch (unless there has been a corporate event), meaning a larger ‘residue’ repayment at maturity. 
  • Why not change the tax rules so that monthly employee SAYE scheme contracted contributions come out of gross salary, rather than net, as a way to encourage greater employee ownership? 

Share Incentive Plan (SIP)

  • The proposal is to reduce the five year tax-free period to three years, with withdrawals in the zero to three year period changed to the ‘lower of’ approach that is currently applied to shares withdrawn during the three year to five year period.  
  • Changing the SIP rules so as to allow companies the ability (if they so choose) to allow shares to remain in the SIP, and therefore retain the ‘tax shelter,’ after a participant has ceased employment, other than for a ‘bad reason’ or death. 

Further reading: Esop Centre Response to HMT Call For Evidence On Tax Advantaged Employee Share Plans 25 August 2023

Company Share Option Plan (CSOP)  

  • The proposal is to increase the current £30,000 individual employee investment award limit to reflect RPI indexation increases since 1995, with the new individual limit to be at least £60,000. 
  • Further reading: Esop Centre Letter To The Chancellor June 2022

Enterprise Management Incentive (EMI)  

  • Double the existing limits on EMI share options to £500,000 (individual) and £6million (overall). 
  • Remove the existing requirement for the employee to make a “working time declaration” (as it is unnecessary and proving to be a “trap for the unwary”) 
  • Increase the current £30m Gross Assets Test company EMI participant limit with a view to allowing EMI (not subject to state aid) to supplement CSOP in larger quoted companies as well as continuing to operate in SME quoted and private sectors. 
  • The expectation is that its scope might be extended; but there could also be adverse consequences such as the withdrawal of the valuation procedure for EMI. – This is much more important than is generally understood because HMRC has traditionally allowed discounts for small minority holding in unquoted companies of 80% or more and this has meant  smaller UK companies have been able to offer more  attractive option packages than is possible in most  other countries.
  • Further Reading: Esop Centre EMI Call For Evidence Submission

Changing the Employee Ownership Trust (EOT) legislation 

  • That the claw-back charge on the trustees, if the “controlling interest” test ceases to be met, be subject to a ‘tailing-off’ after seven years.
  • The current EOT is open to abuse, capable of securing a substantial CGT exemption for the seller without the introduction of any form of Eso whatsoever, so the sale of shares into an EOT should be conditional upon the timely introduction of an Eso scheme.   
  • A graduated scale of CGT relief should be introduced depending upon the percentage of shares released to the EOT.  
  • The incentive for companies to introduce the reformed EOT could be some form of Corporation Tax relief, although this approach requires further exploration and refinement.
  • To allow shares awarded under a SIP and held in the SIP to count towards the 51 percent shareholding needed to satisfy the “controlling interest” test. 

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