Employee Shareholding Vehicle consultation. This idea was dropped in Novemeber 2014 due to lack of interest.

The government, in following the recommendations of the Office of Tax Simplification (OTS) consulted in 2014 on the introduction of a new employee shareholding vehicle as a statutory re-modelling of an employee benefit trust (EBT).

Private companies establishing employee share schemes need such a vehicle to hold and provide a marketplace for employee shares.

The consultation says that, "The aim is to provide companies with protection from some of the tax traps which exist in the extremely complex anti-avoidance legislation but at the same time ensure protection for HMRC by restricting carefully what this vehicle can be used for. This recommendation is of particular importance if government policy is to encourage wider employee ownership in private companies."

The OTS outlines a number of tax issues that the new vehicle could address:

  • the risk of inheritance tax charges unless specialists draft the trust deed
  • the risk of charging capital gains tax on trustees' gains and income tax on shares received by an employee encourages offshore EBTs. These are more costly to administer than onshore equivalents.
  • potential tax on loans to finance EBTs under s455 CTA 2010
  • the transaction in securities rules
  • stamp duty reserve tax on the purchase of shares by the trustees of an EBT, or by employees when they purchase shares from the trustees
  • access to other tax-advantaged schemes under certain circumstances
  • the recently introduced arrangements to tackle the deferral or avoidance of income tax or national insurance contributions through disguised remuneration in Part 7a ITEPA 2003.

To protect the Exchequer from potential abuse the OTS also recommend a number of safeguards:

  • the vehicle should be a UK resident and, if a trust, all its trustees should be UK resident
  • beneficiaries should be limited to employees and former employees rather than the wider definition under the Companies Act 2006, which includes spouses, civil partners and minor children or step-children
  • property held within the vehicle must not be applied other than for the specific purpose of encouraging or facilitating employee shareholding
  • the new vehicle may deal only with fully paid non-redeemable ordinary shares in the sponsoring company or its holding company, except in the case of a corporate transaction in cash or resulting in a share for share exchange
  • that breach of any of these conditions would mean the exemptions would no longer apply and which could, potentially, be backdated for several years unless the breach is proven to be trivial or accidental

The points above formed the basis for the consultation questions.

Link: Consultation on Employee Shareholding Vehicle