Employee Share Schemes

[Dirk Diggler]

I'm looking for some general advice if possible. Particularly, how the tax works.

Example: I contribute £2,000 into the scheme. My employer matches on a 1 for 2 basis therefore the match is £1,000. Assuming the share price stays the same, when I cash in then would I pay 40% on the £3,000 or the £1,000 employer match?

Does the share management company calculate and deduct the tax, or is that self assessment territory?

TIA

 

[Dirk Diggler]

It's described as "employee share plan" and on the registration form it asks whether it's employee share plan or save as you earn, so looks like it's not SAYE.

Edit: I've found some tax info documents on the portal, yes I'll be liable for tax on the matching shares and the dividends, plus potential capital gains when cashing out.

No thanks!

 

[Dirk Diggler]

But surely uour still gaining. If you pay tax on something that's free you're still 'up' on where you started surely?

If the value of the shares plummet then the tax eats into the buffer.

 

[Dirk Diggler]

You're doing BAYE. Money will be taken out of the gross pay before tax/NI, so you are saving that

That's not the case with this scheme. Also, it isn't a 50% match gain it's 33% (I buy 2, they match with 1). I just don't think it's tax efficient enough for me to take the risk. It's not as simple as being free money because the value of what I pay to buy could be less when I sell and the match incentive might not buffer the loss due to the tax take.

It's not like the pension match where my pension is taken from my gross pay and the match is 100% - that really does buffer any potential losses.

If you choose to join the plan, you need to decide what percentage of
your gross salary you want to contribute – this can be between 1% and
10%. Contributions will be made over 12 months from your net (after
tax) salary, and deducted every pay period; this is known as the purchase
period

 

[Dirk Diggler]

It literally is as simple as being free money - there is some added variance but that goes in both directions and you're only considering one. It is a 50% gain too... if you invest 10k and you get an extra 5k on top that is an additional 50% added to your investment. A loss of 33% can wipe out that gain, unless there is something drastically wrong with your company at the moment (and there might be, given the current climate) then I don't see the issue... and if that were the case then I guess this scheme is moot anyway as the bigger risk is to your job itself, ergo you perhaps should be looking to jump ship.

I appreciate you sharing your point of view so hoping I'm not coming across as argumentative. I'm just not much of a gambler and this feels like a gamble. Here's some simple numbers, which I'm happy to have corrected if I'm way off.

Invest £1000
Match is £500 less 40% tax so match is actually £300 (that's 30% of my outlay)

Total pot is £1300. If the shares dip 25% then I'm losing.

 

[Dirk Diggler]

In your quote from your employee handbook I would read that as being you save for 12 months - then at the end of that 12 months they buy you the shares at the prevailing price (at the end) plus 1 free one for every 2 to you buy. I assume those shares are then yours to sell as you see fit so you could cash out there and then with no exposure to share price volatility.

I would not expect you to be buying shares as you go, rather a one off at the end. That is how it has worked for me in the past. And in that company they taxed you in the following pay packet for the tax liable on what they had bought you.

Once you have clarified all that I think you will find it is worth doing.

Absolutely, that's significant. I'll get that clarified, thanks.

Edit: I just found the clarification, it's as I feared.

If you join the plan, [COMPANY] will transfer the money that you contribute to [PLAN ADMINISTRATOR], on a monthly basis in order to make the share purchases on your behalf.

 

[Dirk Diggler]

Hi, Yes you're numbers are wrong.

I'm afraid it's your numbers that are wrong for my situation, because the money is taken from my net pay therefore no tax relief to be had. Plus, there would be a 40% deduction on the £500 contribution from my employer.

Definitely more of a brainer than a no brainer, this one.

 

[Dirk Diggler]

Who administers the scheme? YBS or Equiniti? Are you completely sure it's taken out of net? The whole point of these schemes was they are supported by the government to encourage employee investment in their company hence the tax break.

A company called Computershare apparently, first I've heard of them.

And yes, it's net.

If you choose to join the plan, you need to decide what percentage of
your gross salary you want to contribute – this can be between 1% and
10%. Contributions will be made over 12 months from your net (after
tax) salary, and deducted every pay period; this is known as the purchase
period

 

[Dirk Diggler]

More important question is are you expecting your company shares to decline in value and stay low for the duration of your employment? If so why would that be? If you're worried about that being a serious possibility then I'd suggest the far bigger gamble you're taking is your continued employment with a company in decline rather than worries about losing £300.

Two words to that: Oil & Gas.

 

[Dirk Diggler]

The wording where you mention the monthly transfer to the service provider is a little ambiguous in my opinion

I'm taking it to mean that the shares are purchased on a monthly basis, but yes it's ambiguous.