Schedule 13 - Employee share ownership plans: amendments
Finance Bill
11:30 am
Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)
The current rules allow employers to set a qualifying period for participation in the all-employee share ownership plan of up to 18 months. That allows employers to exclude certain employees from the plan—for example, those on short-term contracts. However, the employer is free to choose whether to introduce a qualifying period. For the purposes of saving for partnership shares, the employer can choose whether to introduce an accumulation period—the period over which employees save to buy shares. Where the company sets an accumulation period, it will be a fixed period, which applies to all employees. The accumulation period could be the financial year from 1 April to 31 March, or could be much shorter if the company wished. An employee cannot start to accumulate funds to buy shares until they have served any qualifying period set by their employer, and must always start at the beginning of the accumulation period. However, the employee needs to have served a qualifying period of only six months to buy shares through an accumulation period, in recognition that accumulation periods may be as long as 12 months.
The all-employee share ownership plan was designed with maximum flexibility for employers who choose to offer a plan to their employees. It is for the employers to decide what elements they wish to put into plans to reward their employees. Proposed new sub-paragraph 5 would remove some of that flexibility for employers. In addition, the amendment would probably not achieve its intended effect if an employee is to participate in an award of partnership shares. In that case, the employee must be eligible as defined in paragraph 13 of schedule 8 to the Finance Act 2000. Under the amendment, the employee will not be eligible at the start of the accumulation period.
Proposed new sub-paragraph 6 is intended to allow employees to signal the intention to join the accumulation period at some time other than at the start. The current rules governing the all-employee share plan already allow some flexibility. Employees may start or stop paying into the plan at any time, and can choose the dates on which to exercise the choice. All they have to do is tell their employer. On that basis, the amendment is unnecessary. However, the heart of the matter is getting the right balance between flexibility for employees versus the cost for the employer in administering the scheme. Last year's Act set the balance at about the right place.