Streamlining All-Employee Share Schemes: Government’s Plan to Boost Workforce Engagement.

The Spring Budget 2023 saw the UK Treasury launch a call for evidence for Save As You Earn (SAYE) and Share Incentive Plans (SIP) non-discretionary employee share schemes with a view to making them more accessible and appealing for both companies and their employees. These schemes allow staff to own a share of the company they work for, seen as a powerful tool in attracting, rewarding, and retaining top talent to support growth.

Employee share schemes have become an integral part of the modern workplace and instrumental in promoting employee ownership and aligning their interests with company success. In the UK, there are various types of employee share schemes offering different benefits, but proposed changes to SAYE and SIP schemes aim to widen employee participation, particularly among lower-income earners, in what are currently under-utilised tax advantaged share plans.

The consultation follows the announcement in Autumn 2022 and subsequent introduction of changes to Enterprise Management Incentives (EMI) and Company Share Option Plans (CSOP) discretionary incentive plans, so assessing non-discretionary schemes seems like a logical next-step.

The Mechanics of SAYE and SIP Schemes

Both SAYE and SIP schemes have some key features that make them attractive:

Tax Advantages

Employees can receive tax advantages when buying shares through these schemes. For example, they may not have to pay income tax or national insurance on the value of the shares.

All-Employee Plans

Both schemes are non-discretionary and must be offered to all eligible employees, making them inclusive and fair.

Long-Term Savings

Both schemes encourage long-term savings and investment in the company, which can benefit both the employee and the employer.

With SAYE, participants receive options over shares and can save up to £500 each month from post-tax salary for a period of three or five years. At the end of the savings contract, employees can either purchase the option shares using their savings at the exercise price (which can be set at a discount of up to 20 percent of the shares’ market value on the grant date) or retain the cash.

No taxable income arises when SAYE options are exercised on or after the third anniversary of their grant date. An employee’s Capital Gains Tax (CGT) liability when they sell SAYE shares is based on the difference between the disposal proceeds received and the option exercise price paid to acquire those shares.

On the other hand, SIPs allow employees to purchase ‘partnership’ shares from pre-tax salary up to the value of £1,800 or 10% of their salary, be gifted ‘matching’ and/or ‘free’ shares to a maximum of £3,600 a year, and reinvest dividends paid on SIP shares. Shares are held by a UK trustee on behalf of participants for as long as they remain within the SIP. The salary used to acquire partnership shares, and the value of any matching and/or free shares received, is free of income tax, NIC and Apprenticeship Levy provided those shares are retained within the SIP for at least five years.

Reinvested dividends are also income tax free provided the shares acquired are held within the SIP for at least three years. However, income tax and social security relief may be ‘clawed back’ in whole or in part if shares are removed from a SIP within these time periods. Any growth in the value of shares held within a SIP trust will be CGT free, so no CGT should be payable if shares are retained in a SIP trust until they are sold.

Reasons for Assessing the Rules

The Government’s desire for reform allows an opportunity to better understand the current utilisation of SAYE plans and SIPs by employers, and whether these plans effectively align the interests of employees and shareholders by promoting greater employee share ownership and encouraging savings and investments.

The Government is also seeking feedback on potential opportunities to enhance and streamline the SAYE and SIP schemes. The consultation will examine various aspects, such as identifying any barriers to participation, assessing the clarity and simplicity of the SAYE and SIP regimes, evaluating the flexibility of these regimes to meet individual employers’ commercial requirements, and determining whether SAYE and SIP schemes effectively encourage share ownership among lower earners.

Victoria Atkins, Financial Secretary to the Treasury, said that Growing the economy is a priority for this government and one way to make this happen is by making these schemes as easy as possible to set up.

With this in mind, there are several benefits available from this consultation:

Improve accessibility

Currently, the rules around SAYE and SIP employee share schemes are quite complex and can be difficult for employees to understand. By simplifying the rules, the government hopes to encourage more employees to participate in these schemes.

Encourage employee ownership

The government believes employee ownership can be a powerful tool for improving productivity and increasing employee engagement. By making it easier for employees to own a stake in their company, the government hopes to encourage more businesses to adopt employee ownership models.

Align with modern business practices

The current rules around SAYE and SIP employee share schemes date back several decades and have not kept pace with modern business practices. The belief is that the rules need to be updated to reflect the changing nature of work and to ensure that the schemes remain relevant and effective.

To ensure fairness

Finally, the government wants to ensure that the rules around SAYE and SIP employee share schemes are fair to all employees. Tax-free allowances and other features must be equitable for all participants, so any revisions will be made in the hope to create a more level playing field for all parties involved.

Why Businesses Should Participate

This consultation presents a unique opportunity to drive significant improvements in the way tax-advantaged share plans are utilised to promote employee ownership. By delivering tangible benefits to both businesses and employees, this initiative holds the potential to drive meaningful change in the way all-employee share plans are structured.

For businesses that currently offer a SAYE plan or SIP, this consultation offers a platform to identify areas where these plans could be made more flexible and streamlined, removing administrative hurdles, and making it easier for employers to engage their employees and encourage participation.

For those considering adoption of these plans, this call for evidence provides an avenue to offer suggestions on how to lower barriers to implementation and make these plans more attractive. This is a chance to provide valuable input to the government on how the SAYE and SIP schemes interact with other areas, and where improvements can be made to enhance their effectiveness.

Responses to the call for evidence can be sent via the Treasury’s online survey and are required by 25 August 2023.

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Authored by

Andrew Leaitherland
Andrew Leaitherland Founder and CEO
Although Andrew is an employment lawyer by training, over the last fifteen years he has built up extensive experience in leading M&A activity with professional services firms including leading the listing of DWF Group plc on the main market of the London Stock Exchange. Andrew uses these skills to advise strategically on inorganic growth opportunities for all types of professional services businesses, in conjunction with other members of arch who support on the necessary legal work. Andrew is also the Chair of The Legal Director and a NED of Summize which gives him great insight into how the respective businesses can collaborate to further the interests of our clients.

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