Tax reliefs offered on shares, share options and various other employee
incentive schemes cost the taxman £800m in tax and national insurance takings
every year, a cost that the government absorbs on the basis that these schemes
boost employee productivity, which ultimately grows the economy and overall tax
The new study into the area, conducted by Oxera, however, found that the tax
breaks offered on such remuneration schemes, on their own, were not enough to
Using HMRC data and financial information on thousands of companies, Oxera
looked into whether incentive plans with tax reliefs boosted productivity and
found that other benefits were required to make employee participation
‘Tax-advantaged share schemes on their own do not appear to be sufficient to
improve performance. And companies that only have a tax-advantaged scheme do not
appear to have significantly higher productivity,’ Oxera said in the report.
When such schemes are run together with similar schemes that do not offer tax
breaks, however, Oxera found that productivity increased by 5.2%.
The use of schemes with tax benefits mainly appeared to boost productivity in
listed companies and companies with a turnover in excess of £36m.
‘For tax-advantaged schemes to be effective in increasing productivity, other
factors such as schemes that are not tax advantaged, company size, and being a
listed company are required for a significant productivity effect to be
identified,’ the report said.
The report also looked into the benefits of tax-advantaged schemes across
different sectors, with utilities, manufacturing and financial services the most
likely to see productivity increases.
Real estate, transport, retail, wholesale and hospitality were least likely
The consultancy did not go so far as to suggest a total reform of the tax
incentives available for employee share and profit sharing schemes, but did
question the importance of the tax reliefs in the package of incentives made
available to business by the government.
‘Whether it would be necessary for the government to provide tax incentives
to improve performance is not clear, since there is some evidence indicating
that productivity is enhanced in companies with both types of scheme (those with
and without tax benefits) and not those with tax advantaged schemes only,’ the
Oxera study said.
The study added that HMRC could be well served by targeting the tax
incentives at companies in the sectors and of the scale where tax-advantaged
schemes appeared to provide the biggest boost to productivity.
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