Employment Update: Owners, workers and the taxman
08 October 2012
The Chancellor of the Exchequer George Osborne has today
announced plans for a new ‘owner-employee
contract’.
The
press release from HM Treasury explains that
new owner-employees will exchange key UK employment protections for
rights of ownership in the form of shares in the business they work
for, any gains on which will be exempt from capital gains tax.
Companies of any size will be able to use this new kind of
contract, but it is principally intended for fast growing small and
medium sized companies that want to create a flexible
workforce.
Under the new type of contract, employees will receive between
£2,000 and £50,000 of shares that are exempt from capital gains
tax. In exchange, they will give up their UK rights on unfair
dismissal, redundancy, and the right to request flexible working
and time off for training, and will be required to provide 16
weeks’ notice of a firm date of return from maternity leave,
instead of the usual eight.
Interestingly, Osborne has described this as a ‘voluntary three
way deal’, with the company giving employees shares in the
business; the employee replacing their employment rights with new
rights of ownership and the Government charging no capital gains
tax.
But how voluntary will this be? HM Treasury states that
owner-employee status will be optional for existing employees, but
both established companies and new start-ups can choose to offer
only this new type of contract for new hires. This therefore
potentially enables unscrupulous employers to restrict a new hire’s
employment rights in exchange for no more than £2,000.
The Guardian has reported that Adrian
Beecroft, the venture capitalist who had proposed the introduction
of the concept of ‘Compensated No Fault Dismissals’, has (perhaps
unsurprisingly) endorsed Osborne’s proposal.
Legislation to bring in the new owner-employee contract will
come later this year so that companies can use the new type of
contract from April 2013. The Government plans to consult on the
details of the contract this month.
The proposal does look to fill part of the gap in the capital
gains tax treatment for employee shareholders – between those who
benefit from exemption from capital gains tax through using
annual exemptions (or an HM Revenue &
Customs approved
share incentive plan), and those that pay
capital gains tax at 10% because they are eligible for
entrepreneurs’ relief. However, we can
expect some strong views from employee representative groups, who
may well consider the proposal amounts to a cut-price sale of
employment rights.