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The UK government plans to overhaul the rules affecting employee share schemes in order to boost take-up and help low earners own a stake in the companies they work for.
HM Treasury said on Monday it was consulting on ways to improve two schemes: Save as You Earn, which allows workers to buy discounted shares in their company through monthly saving; and Share Incentive Plans, which allow companies to help employees buy shares or offer them as awards. Both come with generous tax breaks.
The Treasury wants to simplify the schemes with a view to expanding their use among lower earners in particular.
Ministers see employee share ownership as a way for employers to motivate and retain staff, while helping workers save and aligning their interests with the company’s.
Both Conservative and Labour politicians have historically favoured employee ownership — viewing it respectively as a route to a share-owning society, or a way for workers to share the wealth they create.
Victoria Atkins, financial secretary to the Treasury, said the schemes offered “a boost for business” by giving people an extra stake in what they did, and that making them easy to set up would support the government’s objective of growing the economy.
Listed companies have made relatively liberal use of a separate scheme, the Company Share Option Plan, which allows them to offer key staff the option to buy shares in the company at a fixed price, free of income tax or national insurance contributions. In April, the government doubled the limit on the maximum value of CSOP options an employee can hold, from £30,000 to £60,000, while relaxing rules on the types of shares eligible.
However, a smaller and declining number of companies use the SAYE and SIP schemes, designed to offer options or shares to all employees.
Industry representatives have lobbied ministers for reforms they say would boost take-up, in particular reducing the time employees have to hold shares in a SIP in order to qualify for tax breaks, from five to three years.
“People with less money have to wait longer for the tax advantage than executives,” said Sarah Anderson, business development manager at RM2, an advisory group, noting that three years was the norm in other schemes.
She added that another potential barrier to take-up was the recent reduction in the tax-free allowance for dividend income, which will drop from £2,000 last year to £500 in 2024-25, meaning many relatively low earners paid dividends through a SIP could be required to fill out a self-assessment tax return.
A recent evaluation by HM Revenue & Customs found that awareness of the schemes was low: senior executives of more than half the companies already using them did not even know they were signed up. Some were also worried that employees could gain a controlling interest in the company and about administrative complexity.
Earlier research by the Social Market Foundation, published in 2020, found a majority of listed company employees would like to own shares in their employer. However, almost four in 10 of those offered the chance turned it down because they felt they could not afford it.
The Treasury is asking companies and employees what changes would encourage them to participate in the schemes.
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