What a year 2018 has been for share schemes and EOT transactions

Posted by RM2 at 16:06 on 18 Dec 2018

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The big story of the year has been the increasing number of companies converting to employee ownership by selling to an employee ownership trust (“EOT”). Here’s a run down of what went down this year in the world of employee share schemes and employee ownership:

January: Trust and Estate Tax returns are due 31 January. RM2 filed around 45 trust returns, for Share Incentive Plans (“SIP”), Employee Benefit Trusts (“EBT”) & EOTs, for its clients this year. MiFIDII comes into force.

February: ProShare publishes their report on Attitudes to Employee Ownership, looking specifically at Share Incentive Plans (“SIP”) and Save as You Earn (“SAYE”) plans. Unsurprisingly, plenty of participants felt the periods for favourable tax treatment were too long – this has always been a big criticism of SIP, which only delivers full tax advantages after five years. This is much too long, especially for younger employees.

March: Philip Hammond has decided that one budget a year is sufficient, but we did get a Spring Statement. We all got a bit excited about a consultation which was to consider protection of shareholders whose 5% equity is diluted (and entrepreneurs’ relief thus lost) if the company issues new shares in order to raise capital. We hoped that this might be the same for the issue of new shares following the exercise of share options by employees … sadly, this didn’t transpire in the budget in November.

April: Share plan returns time – RM2’s favourite time of the year! We filed over 175 share plan returns, and every single one was on time. Elsewhere, companies struggling with the DIY approach to filing returns incurred large and escalating fines. HMRC announced that State Aid had not been renewed for Enterprise Management Incentive (“EMI”) share schemes, throwing everyone into a brief state of panic.

May: Kinetic plc announces it has transitioned to employee ownership, in the interests of preserving the company’s independence and culture, without selling to a third party. HMRC announces that State Aid for EMI is back on, and sighs of relief are breathed. The General Data Protection Regulations (“GDPR”)come into force.

June: Publication of The Ownership Dividend, setting out the economic case for employee ownership – well worth a read if you haven’t already seen it: http://theownershipeffect.co.uk/. Meanwhile, Riverford Organics makes the move to employee ownership. Friday 29th June is Employee Ownership Day!

July: RM2 publishes the second edition of Garry Karch’s must-have book on EOT (we all needed cheering up after England’s World Cup exit!)

August: We take advantage of the holiday period to publish our view on HMRC’s latest share schemes stats. EMI continues to fire on all cylinders – but we’re sad to see a decline in the SIP.

September: Labour & John McDonnell make a big noise about “inclusive ownership funds”, suggesting that larger companies may be required to set aside up to 10% of equity for employees. Given that Labour aren’t currently in power and (at the time of writing) no general election is planned, this policy is no more than a twinkle in a potential government’s eye.

October: The Chancellor’s budget announces changes to the treatment of entrepreneurs’ relief (“ER”). For EMI option holders, this means you have to hold your options for two years before shares are sold in order to benefit from ER, rather than one year. Not ideal but EMI continues to be the most tax efficient discretionary share option scheme for SMEs.

November: The 13th Employee Ownership Association (“EOA”) Conference is held (RM2’s stand offered chocolates & our book on EOTs). A truly inspiring event for all aspiring employee owners to learn about how companies have successfully transitioned. Phrase of the conference was “Wallace & Gromit”, as Aardman Animation recently announced their sale to an EOT. And the EOA and RM2 publish the EO Top 50 Companies for 2018.

December: We try not to say the B-word, but how can it be avoided? At the time of writing, nobody has any idea what’s going to happen in relation to the UK’s proposed exit from the EU on 29 March 2019. We do know that there is huge uncertainty for business generally; in our world, we also know that State Aid approval for EMI runs out in 2020, a little before the end of the “implementation period”. Watch this space.

We look forward to helping you next year with your share plan and employee ownership requirements. Contact us on 0208 949 5522 or email enquiries@rm2.co.uk