At last week’s Conservative Party Conference, George Osbourne announced a new share ownership deal whereby employees in start-up companies could give up certain employment rights in return for shares (valued between £2K and £50K) in their company which would then be free of CGT.
I’ve long been an advocate of wider employee share ownership but this really is not the way to do it. Unfair dismissal, redundancy pay, maternity rights and flexible working seem to me to be pretty important ‘rights’ that any decent employer would want to follow and not something to be traded for a possible tax gain somewhere in the future. I say that as an ‘employer’.
Also, as someone who has set-up quite a few companies in my time, giving shares to ‘Day One’ employees would have been a pretty dumb thing to do. In the early stages of any company development you need to keep decision making tight – something that wider share ownership (of the same class of share) makes difficult. Also, probably at least 50% of ‘Year One’ employees have ‘moved on’ by Year 3. Some of their own choice to go to a better place to work or changed circumstances (do I want these as my longer term shareholders?). Some at ‘my’ choice (even more so, do I want these as my longer term shareholders?)
This is a policy which really doesn’t seem to have been thought through.
For many years I have been lobbying for the following:
1 – The EIS scheme rules should be extended to those involved/ employed within the company. That would enable early stage owner/employees to invest with the same incentives as ‘outsiders’ and, indeed, to trade lower salaries in the early days against the EIS income tax incentives. This would be particularly attractive for those leaving well paid jobs (with high income tax or CGT bills in the previous year) to go work for start ups.
2 – I am not a great lover of share options (always a one-way bet). Instead, employees should be allowed to buy shares at a discount (say 50%) in exchange for putting real skin/cash in the game and not being able to sell such shares for, say, a 5 year period. This is currently impossible without triggering income tax liabilities on the supposed ‘gifted’ value of the shares.
3 – It should be made much easier for the initial shareholders in a business to transfer shares to employees. At the moment it is still a tax nightmare where the transfer of such shares can trigger income & NI (not CGT) bills for both parties which can only be met by selling the shares – the exact opposite of the desired outcome.
These are simple changes which could easily be enacted. None requires changes to employees' rights.