The idea is that employees would give up certain employment rights, such as unfair dismissal, in return for between £2,000 and £50,000 of shares in the company, which would be exempt from capital gains tax.
Employers could determine the type of shares offered, including whether they carry voting rights or the right to receive dividends. While some employers could be attracted to buying off employment rights for a one-off share issue of as little as £2,000, the proposal raises many potential problems. For instance, it is suggested that a company would have to pay 'reasonable value' for shares surrendered on termination of employment, but how would that be established? And how would shares be valued if they are not publicly traded?
The Government has asked whether there will be any 'unintended consequences'. One implication might be to enable entrepreneurs to set themselves up as owner-employees simply to avoid tax. It could turn out that 'owners', rather than employees, end up being the big winners under this arrangement.
Michael Burd and James Davies, Lewis Silkin LLP solicitors, email: email@example.com.