In September 2013 legislation providing for a new form of employment status, Employee Shareholder Status (“ESS”) came into force. ESS was controversial, because it allowed employees to relinquish a number of statutory employment rights in exchange for shares worth at least £2,000. The legislation on ESS provides a number of minor exemptions from income tax when the shares are issued to an employee, but the main attraction of the plan is that it exempts any gains on the eventual sale of the ESS shares from CGT.
In the run up to the election, both the Labour Party and the Liberal Democrats included pledges to abolish ESS in their manifestos: its abolition was to be included in one of six Bills that Labour were proposing to introduce in their first few weeks of office had they been elected.
The election of a Conservative government on 7th May means that ESS is likely to remain available for the foreseeable future.
ESS has proven to be popular with management teams in high-growth businesses, for whom the statutory rights that they are surrendering are less valuable than the rights that they currently enjoy under their contracts of employment.
The rules on ESS contain very few restrictions on the type of company that can offer ESS shares or on the person signing up to an ESS agreement. For this reason, ESS has also been adopted by companies that do not currently qualify for EMI or one of the other statutory share schemes, either because they are too large in the case of EMI or their ownership structure means that they fail the independence tests set out in the legislation.
Despite the intense criticism levelled at ESS when it was originally introduced, the scheme has filled a gap by allowing employees to participate in the growth of businesses that would not otherwise be able to access any of the statutory share schemes.