BEWARE - Rewarding Employees With Dividend Bearing Shares (Particularly From 2016)

As a Solicitor with expertise in the fields of company (and other 'business law' areas), I have assisted with the introduction of a number of 'employee / dividend bearing share schemes' in the past.

However, I always have to advise that such schemes are generally open to challenge by HMRC, with the risk (of unpaid tax, interest & penalties) potentially falling upon the company / employer - for arguably not having operated employment related securities legislation and PAYE correctly.

It is relatively rare for such proposals to originate (or be actively supported) by a client's general / ongoing (accountancy &) taxation advisers - As many are nervous of being considered by HMRC as assisting with or promoting the implementation & operating of such schemes (which then potentially risks their other clients affairs being more closely examined by HMRC!)

Accordingly, most persons who request such services have often been advised by 'an acquaintance in business' (a.k.a. 'their mate in the bar at the golf club') and they may choose to take the risks involved in such schemes - upon the (arguably - not unreasonable) view that HMRC may not have the manpower (or other resources) to identify and challenge such arrangements.    

However, anyone currently considering such schemes (i.e. in late 2015) needs to be aware that in the July 2015 H.M. Government Budget it was announced that the taxation of dividends will be reformed, with legislation to be introduced in 2016.

The government noted that the reform would "reduce the incentive to ... remunerate through dividends rather than wages to reduce tax liabilities".

The impact on the use of shares to reward employees in general will not be clear until detailed legislation is published (next year), but it is believed probable that it will make such share based / dividend  schemes generally incur more tax in aggregate (i.e. Corporation Tax + Income Tax) than simply paying elements of remuneration under PAYE (for which the company / employer enjoys a deductible expense).

Beware of anyone who currently seeks to advise you to implement such a scheme without providing the above warning - particularly now - as they are likely to be wasting your money!

Dan Johnson (of Equitable Law) has now prepared a relatively concise and clear note upon the relevant issues, so that any interested parties are aware of the current potential problems (and likely additional problems - in the future) of seeking to implement such a scheme.  Please let me know if you would like a copy of the same.

However - Notwithstanding the above - If you wished to proceed with such a scheme - They can be introduced relatively cost effectively and with minimal effort (albeit their days appear numbered!).

We would be happy to discuss any issues arising from the above - Particularly with anyone currently operating such a scheme or those who are interested in potentially legal and practically workable arrangements to reduce the charges to tax.    


October 2015


Dan.Johnson@EquitableLaw.com


07788 537 187 (U.K. Cell. Tel.)