The minutes of the last meeting of HMRC’s Employment Related Securities Forum, attended by representatives of BIS, companies and various bodies involved in tax and employee shares, were recently published and make interesting reading. The largest section is devoted to employee shareholder (ES) shares – the so-called “shares for rights”. Points raised were:
- Feedback: BIS welcomed feedback on any policy or legal issues that could affect take-up of ES shares. Presumably it must be aware of the reputational issues, backed up by concerns over cost and complexity, that are the real barriers to take-up (other than perhaps in limited circumstances for senior managers who are prepared to forgo employment rights in return for the potential CGT saving).
- Payment for ES shares: These must be issued free to employees. The issue arises as to how to do this without falling foul of the prohibition in the Companies Act on a company issuing shares for less than nominal value. Generally the solution to this is to transfer already-existing shares to the employee, usually from an employee benefit trust (EBT), but transfer is not allowed for ES shares. BIS confirmed that a third party such as an EBT can pay for the shares. It also expressed a view that treasury shares could be used as ES shares, despite the fact that treasury shares are pre-existing (not newly-issued). However, it admitted that “appropriate clarifying amendments” will have to be made to the legislation.
- Glitches in guidance: apparent discrepancies between BIS guidance and HMRC guidance on eligibility for employee shareholder status are to be checked out by HMRC.
- Updated BIS guidance was supposed to be published within a “few weeks” after the meeting (9 weeks later, this still hasn’t appeared).
On a related note, BIS has recently published a “simple guide” to the new regime on the buy-back of shares, which was introduced in order to make it easier for companies to adopt employee ownership. Here too, further changes to legislation are proposed:
- to clarify the position on the exemption that allows a company to buy back small numbers of shares up to a maximum per financial year of £5,000 (or, if less, 5% of the nominal value of the company’s issued share capital) in situations where the shares are bought back at more or less than nominal value; and
- to simplify the timing of the surrender of and payment for shares.
So still some way to go before these areas are finalised ….