Tag Archives: HMRC

#UK: New “employee-shareholder” #employment status – a pro-risk move

The proposal for a third type of employment status has been playing a game of ping-pong back and forth between the lower and upper parliaments in the UK.

Risk Versus Fairness
At stake has been the protection of employment status and rewarding risk for those joining a new Start Up, most likely in the Technology sector, with much debate aimed at preventing exploitation by unscrupulous employers.

Start Ups are intrinsically risky, and the UK is traditionally highly risk averse. So this bill seeks to change a fundamental characteristic of the British way of life. Namely to encourage risk taking, while retaining “British fairness”, the latter being a factor which has made and still makes UK law the “best in the world”.

Employer Scruples & Moral Responsibility
Now there is still an implied moral responsibility on employers to reward the risk taken by employee-shareholders in as short a time as possible.

Any employer taking this type of employment contract beyond 18 moths, and certainly 2 years, risks being seen as unscrupulous. Social media now provides an unparalleled platform for comment, and it is highly likely that unscrupulous practice would soon become visible.

Product Driven Start Up Boom ?
Equally, there is a pressure for large employers to produce new products quickly and effectively, and the ability to do so could well be a critical measure of how well companies compete in a global marketplace.

It may well be that this new legal status encourages larger UK companies and UK business angels to diversify more, and set up more new companies on a product by product basis. This could accelerate the trend for corporates to shrink, as well as the ability to launch new product and compete on the global stage.

Inadequate Start Up Infrastructure
As such, the infrastructure in the UK is as yet inadequate to support such a step up in entrepreneurial activity, although awareness is growing.

The UK does not understand as well as the more mature US market the value of support services provided specifically for start ups, where experience can be brought in from outside a raw start up to help fill the gaps caused by lack of business breadth and experience.

This is particularly perceived to be true true at the Start Up stage, but also still true as Start Ups seek to break through the early adopter stage and become a mainstream UK business entity.

So there could be a lag between the bill being finally passed, and a noticeable uptake in the option for this type of employment, and any national ability to compete on the world stage.

HMRC Tax Avoidance Vigilance
In the event that a product driven boom in Start Ups is evidenced, expect HMRC to look carefully at ways  that “Tax Avoidance” schemes make use of the provisions, which I believe exempt employee-shareholders from Capital Gains Tax on the first £50,000 worth of share holdings. Following which HMRC would no doubt crack down on schemes that defeat the spirit of the bill, if not the letter of the wording.

Giving it Time to Work – UK Law at its Best
No doubt, over time, some of the wording of the bill may prove to be inadequate, the English  language being what it is. But then expect the UK to come back and redress the loopholes. It’s just the way we are.

It is this attitude that makes UK law the best in the world: the understanding that we want to be fair, and allow all every chance to proceed and take part, yet allowing for the way the world  is changing so rapidly, and recognising the need to compete adequately on the global stage.

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