Employee shareholder is a new employment status which became available from 1 September 2013. HMRC have now published guidance on their website on the tax rules that apply to the new status.

Under the new status, employee shareholders have different employment rights to employees, and are awarded at least £2,000 worth of shares in their employer or a parent company. Businesses wishing to offer an employee shareholder contract do not need to obtain HMRC approval/agreement to do so.Broadly, the specific tax rules for shares received under an employee shareholder agreement are as follows:-

• Income Tax and National Insurance Contributions are not usually chargeable on the first £2,000 of share value received by an employee shareholder.
• Before an individual agrees to be an employee shareholder they must receive advice from an independent adviser on the terms and effects of the employee shareholder agreement.
• The employer company is required to meet reasonable costs for that advice but this will not be treated as giving rise to a taxable benefit.
• There will usually be a Capital Gains Tax exemption for gains on the disposal of up to £50,000 worth of shares received by the employee shareholder. This is subject to the employee shareholder not having a ‘material interest’ in the company.
• Employers who have awarded employee shareholder shares will need to complete and submit Form 42 (Employment-related securities) at the end of the relevant tax year.
• Corporation tax deductions may be claimed on the acquisition of shares by employee shareholders (subject to the normal qualifying rules) and generally where a company meets the costs of advice provided to an individual considering an employee shareholder offer.

Detailed guidance is available on the HMRC website.