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EMPLOYEE SHARE SCHEMES
In March 1999 the Chancellor announced the introduction of two new schemes designed to encourage employee share ownership. Following consultation on the final format of the schemes over the last year, legislation will be included in Finance Bill 2000.
ENTERPRISE MANAGEMENT INCENTIVES SCHEME
EMI schemes will allow independent trading companies with gross assets not exceeding £15,000,000 to reward up to 15 key employees with tax-advantaged share options, worth up to £100,000 at the time of grant. In detail:
 | there will be no income tax or NICs for the employee to pay when the options are exercised, nor will there be any liability for employers' NICs;
| when shares are sold, the gain will qualify for the business assets taper, and the qualifying holding period will begin with the date the options are granted.
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ALL-EMPLOYEE SHARE SCHEME
Aimed at a much wider target, the scheme will enable employees to acquire shares completely free of income tax, national insurance contributions and capital gains tax if they are held in a scheme for five years. The scheme will mean that:
| employers will be able to give up to £3,000 of shares to employees, free of tax and NICs (free shares) and some or all of these shares can be awarded for reaching performance targets for periods beginning before the 2000 Finance Bill becomes law;
| employees will be able to buy shares out of their pre-tax salary, up to a maximum of £1,500 a year (partnership shares);
| employers may match partnership shares by giving employees up to 2 free shares for each partnership share they buy (matching shares);
| free and matching shares must normally be kept in the plan for at least three years;
| employees who take their shares out of a plan after three years will pay income tax and NICs on no more than the initial value of the shares;
| employees who sell their shares will be liable for capital gains tax only on any increase in the value of the shares between the date the shares are taken out of the plan and the sale date (so long as they were held in the plan for at least three years);
| dividends paid on plan shares up to £1,500 will be free of tax, so long as they are used to buy more shares in the company;
| shares must come out of the plan when employees leave the company and some employees may lose their free and matching shares if they leave their job within three years of getting the shares;
| employers will get a deduction in computing their taxable profits for the cost of setting up and running the plan, and for the market value of any free and matching shares used in the plan.
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"The difference between tax avoidance and tax evasion is the thickness of a prison wall." (Dennis Healey )
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