Autumn Statement announcements show Government's commitment to employee share ownership, says expert

Out-Law News | 09 Dec 2013 | 10:19 am | 2 min. read

The Government has made "timely and unexpected" increases to saving limits on common tax-favoured employee share plans, further demonstrating its "commitment to extending employee share ownership", an expert has said.

Matthew Findley of Pinsent Masons, the law firm behind Out-Law.com, said that the increased limits on "popular and established" share plans Sharesave and the Share Incentive Plan (SIP) were "one of the most welcome recent boosts" to all-employee share plans. Although recent Government initiatives had been welcome, they had been "seen as at the margins of how employee share plans are operated" by many companies, he said.

"Lobbying has been going on for a number of years with a view to securing an increase in the Sharesave and SIP limits given that, amongst other things, the Sharesave limit has been at £250 since 1991 and the SIP limits have not been changed since the SIP was introduced in 2000," he said.

"Many companies will be keen to give employees the opportunity to increase their investment in Sharesave and/or SIP. If economic conditions continue to improve, and disposable incomes begin to rise, this may offer a significant boost to employee equity participation if share prices continue to perform well," he said.

Sharesave, or Save As You Earn (SAYE), and SIP are the two main types of HMRC-approved employee share schemes, meaning that they attract a tax advantage. Sharesave allows employees to save up their own money before deciding whether to use this to acquire shares in their company at a discount, while SIP allows employers to offer their staff the opportunity to purchase shares out of gross salary.

As part of his Autumn Statement, the Chancellor of the Exchequer allocated an additional £25 million annually to support employee ownership, following the annual £50m set aside as part of the Budget in March. This will be used to increase the maximum annual value of shares that an employee can acquire with tax advantages under SIP to £3,600 a year for 'free' shares and £1,800 a year for 'partnership' shares, and to double the monthly SAYE contribution limit to £500. It will also be used to fund two previously-announced tax breaks for indirect employee ownership structures.

"Companies will welcome the changes as a sign that the Government is serious about boosting all-employee share ownership," said share plans and incentives expert Matthew Findley. "The credibility of those efforts had been undermined by the focus on the unpopular 'employee shareholder' status and, while this now appears to be finding its market, that market is much narrower than the Sharesave or SIP market."

"The increases are also pleasing evidence that the Government appears to be aware of the greater business interest in all-employee share plans. The wider efforts to extend employee share ownership, the 'fairness agenda' coming out of the executive pay debate and related developments have led to many companies revisiting their all-employee share plans. These changes will only increase the number of companies looking at how best to extend equity participation to their wider workforce," he said.

Findley said that companies would now need to review their plan rules and employee communications in order to identify what action may be needed to take account of the increased limits. "Consideration will, of course, also need to be given to any additional costs that the increased limits will give rise to," he said.