Concerns over employee 'shares for rights' initiative

A new initiative allowing employees to forfeit certain employment rights in exchange for tax-exempt shares in their employer company could cost the Government billions in lost revenues and put employees at risk, various bodies have warned.

The concerns come after the 'employee shareholder status' - dubbed the 'shares for rights' measure - was given the go ahead in last week's Autumn Statement.

As detailed in the Autumn Statement, employees who choose 'shareholder status' will receive a minimum of £2,000 worth of shares and gains on up to £50,000 of shares will be exempt from capital gains tax from April 2013 - although they may still result in an immediate income tax and NIC liability.

However, calculations from the Office for Budget Responsibility (OBR) revealed uncertainties surrounding the take up of the relief, which could cost the Treasury around £1 billion by the end of the forecast period.

In the Treasury's accompanying Policy Costings, the OBR said: "It is hard to predict how quickly the increased scope for tax planning will be exploited; again this could be quantitatively significant as a quarter of the costing already arises from tax planning ."

Elsewhere, employment and taxation bodies voiced concerns about employees giving up basic employment rights such as unfair dismissal, redundancy pay and flexible working.

Research advisor for the Chartered Institute of Personnel and Development (CIPD), Jonny Gifford, welcomed moves to promote employee ownership of companies but labelled the plan as 'seriously misguided'.

"Employee ownership can contribute to greater employee engagement, but only if it is complemented by other mutually supporting management practices. The employment relationship should be seen as an ecosystem, not a trading bazaar," he said.

There were also concerns that the three-week consultation period in late October was insufficient to properly assess what the Financial Times called a 'complex tax change'.

The Chartered Institute of Taxation also said there were risks that the scheme will be 'over-complex, still create tax liabilities and put employees at risk for little or no real reward'.

The technical director for the Low Income Tax Reform Group, Robin Williamson, said: "It is crucial that employees fully understand the consequences and risks of their choice, but we fear that they are unlikely to do so and may be pressurised into these arrangements."