Experts have slammed the government for failing to make crucial reforms to the relaunched share incentive plan. They say many companies are wary of the scheme because it is complex and it could have hidden tax implications
Within hours of the launch this week of the the government’s refreshed share incentive plan – a renamed AESOP – experts were coming forward to declare what a missed opportunity the whole thing was.
The share incentive plan is a government initiative allowing employees to own shares in their companies without suffering the usual tax implications.
Under the scheme, employees can buy up to #1,500-worth of ‘partnership shares’ from their salary before tax and national insurance deductions.
Employers can also give up to #3,000-worth of shares each year free of charge. If the shares stay in the plan for five years they are not subject to income tax or NICs and shares removed from the plan and sold at once are not subject to capital gains tax.
On Monday, Gordon Brown, supported by paymaster general Dawn Primarolo, spoke of how the scheme was designed to help improve the productivity of British industry by bringing the interests of employees closer to those of their employers. Brown said: ‘There is no better incentive for employees than for their work to be recognised and for them to share in their firm’s success.’
A roadshow has been planned to take the message to SMEs across the country.
But dissent is rising. Graham Ward-Thompson, a human resources consulting partner at PricewaterhouseCoopers, claimed the share plans were a missed opportunity. Instead of just renaming the old AESOPs, important reforms should have been undertaken, he said.
He questions the wisdom of locking employees into share plans for five years when three would be adequate for the tax breaks. He suggests the limit on free shares employees can receive be lifted from #3,000 to #8,000.
More importantly, he claims that in a downturn, employers might not find the plans attractive, particularly quoted companies which may have to undertake large redundancies or suffer a large turnover in staff that could trigger large-scale cashing of shares.
If an employee cashes in shares before the end of five years, NICs are payable by the employer using the value of the shares at sale. If this happens after the share price has risen, it could create enormous costs to employers.
Only 40 of the FTSE 100 have sought shareholder approval to run a share plan and only seven have Inland Revenue approval.
‘The initial rush for shareholder approval has been replaced by a wariness of the hidden tax and the practical complexities of the plan,’ said Ward-Thompson.
For more information on SIPs visit www.inlandrevenue.gov.uk/shareschemes.