Tax threat to employee-owned companies
The Inland Revenuehas confirmed in a briefing with Equity Incentives that anti-avoidance taxlegislation announced in November 2002 will apply to all employee benefittrusts without exception and that companies will not receive any tax deductionuntil shares in the trust have been distributed to employees.
Equity Incentivesargues that the proposed legislation will deliver a major blow to the manygenuine proponents of employee share ownership in the UK and runs contrary tothe Chancellor's aim of promoting long-term share ownership in smallbusinesses.
Graeme Nuttall,managing director at Equity Incentives, said: "There are many companieswho have set aside shares in a trust which will not be distributed to employeesbut are held on their behalf indefinitely."
"The most famous and successful example is John Lewis Partnership, whose trust structure hasbeen admired and emulated by private companies whose owners believepassionately in employee share ownership and who, in many cases, have givenaway a proportion of their companies to their employees via a trust. They aim to involve, reward andmotivate their employees and, until now, could expect a tax deduction tocompensate them for this."
The solution?
Equity Incentives believesthat this threat can be avoided if the Finance Bill is drafted so as to excludefrom the legislation employee benefit trusts which support genuine employeeownership. The Inland Revenue is doubtful this can be achieved because it wantsno loopholes in its new anti-avoidance legislation.
Graeme Nuttall said: "Unlessthere is successful lobbying, this change in the law will prevent or detercompanies following the example of John Lewis Partnership, and could overturnyears of progress towards making such structures attractive to and possible fora wide variety of UK businesses."
"It's all very well for quoted companies whose shares are readily tradeable on a stock market - but what about smaller, privately held companies whose shares cannot soeasily be sold?"
Want to know more?
Equity Incentives advises private and quoted companies on the design and implementation of employee shareplans. To find out more visit www.equityincentives.co.uk
For more information,contact Graeme Nuttall, tel: 020 7861 4000, email: graeme.nuttall@equityincentives.co.uk
A briefing paper on thenew law is available at www.equityincentives.co.uk/content/resources/news.htm
Posted 26 February 2003