Conservatives back on road to popular capitalism with new “owner – employee” proposals

From April 2013 it is expected that UK companies of any size will be able to give new and existing employees between £2,000 and £ 50,000 of shares which will be free of Capital Gains Tax if and when they are eventually sold at a profit. This concession announced By George Osborne at the recent Conservative Party Conference is designed to help popularise capitalism in the same way as Margaret Thatcher’s council house sales and share privatisations were fashioned.

However, this apparently generous tax giveaway comes at a price and there is a trade-off in the form of a partial surrender of statutory employment rights that is seen as a boost to the rapidly expanding small and medium sized businesses which are being relied upon to drive employment growth.

This new initiative, called the “Owner –Employee“ employment contract, will endow owner- employees with full CGT relief but still leave them eligible for other schemes such as the Enterprise Management Incentive. It is planned to be optional for existing employees but participating companies can make it compulsory for all new staff.

Those with owner-employee status will be expected to forfeit their UK rights pertaining to such events as dismissal, redundancy and aspects of maternity leave, flexible working and time off for training. However, participating companies are not compelled to demand every concession and can offer more generous conditions of employment if they so wish.

Clearly, there will be changes to the draft proposals which companies and their advisors will be pressing for and there is a consultation process planned to accommodate this. In particular, there needs to be greater clarification of how a company values its shares in the event that it has to buy them back when an employee is either dismissed or leaves for employment elsewhere.

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