‘Employee shareholder’ status (ESS) was introduced in September 2013 as a new category of worker status. Employee shareholders can forgo a number of employment protections, such as the right to a redundancy payment and protection from unfair dismissal, in return for a minimum of £2,000 of shares in the employer's business.
Currently, ESS shares qualify for certain income tax and capital gains tax (CGT) reliefs, but the CGT relief was restricted, following the 2016 Budget, in relation to agreements entered into after 16 March 2016, to a lifetime allowance of £100,000.
The Government now plans to abolish these reliefs for ESS shares acquired in consideration of an ESS agreement made on or after 1 December 2016. For ESS arrangements entered into before 1 December 2016, the tax advantages will continue to apply. The Government notes that the measures to remove ESS tax advantages are in response to evidence that ESS is being used for tax planning.
ESS technically remains open for the time being, because the provisions to be included in the Finance Bill 2017 do not amend the Employment Rights Act 1996. However, the Government intends to close ESS to new users altogether (presumably by amending the ERA) ‘at the earliest opportunity’.