Proposal to allow employees tax free shares in return for giving up employment rights could be used as a tax dodgers charter.

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25 Oct 2012

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It is proposed that companies will give people shares between £2000 and £50000 which will not be liable to capital gains tax. Accordingly the employee will waive their rights on unfair dismissal, redundancy, flexible working and time off for training. It is questionable whether this will really create a flexible workforce and motivate employees. The “owner-employee” contract may not be the answer for some employers that are looking to take on staff but protect their business from unfair dismissal claims. It could indeed create unwarranted problems for the employer and disruption. Richard Smith, Head of Employment Law at Croner, states: “I think the proposal is a slightly bonkers idea that was designed as red meat for conference in the absence of no fault dismissals.  It is unnecessary and not likely to be commonly used for mainstream employers, but a great way to avoid CGT in smaller organisations where you may for example employ a spouse, give them a bunch of shares, void the employment rights and give them a few hours work to justify the role.  I can’t see many legitimate circumstances where this will be used otherwise. If its new starters without a history – would you give them the shares anyhow; and if its longer term workers – would you care about them having basic employment rights. I would be surprised if it gets to the statute book. In any case, an employee can still bring a claim for discrimination. It is also questionable if the government can interfere with maternity provision based on European law.” It would be surprising if anybody - unless they were coerced – would accept shares in this economic climate and waive fundamental employment rights, particularly the right to a redundancy payment. There will be consultation on some of the details later this month and the aim is to bring in the new owner-employee contract later this year, so that companies can use the new type of contract from April 2013. We wait to see if it actually gets on the statute book or merely suffers the fate of the other Beecroft idea of "No fault dismissals"”. Quite simply, businesses want to attract the best staff that can contribute unique skills and labour to the business so that the business can profit from the performance of the operation. The Coalition abandoned the “no fault dismissals” proposed in the Beecroft Report and entrepreneurs should be wary if they believe swapping rights for shares is another way round this. They could find themselves with more complicated situation than the one they have currently. By having the right employment procedures and policies in place they can manage and measure staff performance in an efficient and cost-effective way that will see the business profit and without the disruption that can be caused through employee management.

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