Employee Share Schemes

[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.

 

[Beerbaron]

Check my previous post

After i posted that i saw on the Government website its 5 years. I don't mind holding on to them for that long as would rather not pay 5 figures in tax.

 

[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.

 

[1pudding1]

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.

Hi, Yes you're numbers are wrong.

Invest £1000. Co add £500 = £1500 to buy the shares. From your gross packet you are £1000 down. But, on the £1000 you would normally pay tax& NI, which means you would take home say £600 of that £1000. So you are getting £1500 of shares that are costing you £600! It's a complete no-brainer.

Also, my scheme makes a monthly purchase of the shares, and I'm not sure why you'd fear it? It's a lot better getting some cost averaging which reduces risk. Say at the end of the 12months, the share price is at a 12month high and you get way less shares for your money that compared to buying them every month. Of course the share price may be at a 12 month low so you could be losing out, but it seems like you're risk averse so you should be pleased they're bought every month.

Edit. Also to lose money, say the share price was £15, it would need to drop to £6 for you to lose money. A BIG drop, and pretty unlikely most of the time (Although Covid&Brexit has seen that eventually happen to my companies share price)

 

[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.

 

[1pudding1]

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.

 

[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

 

[dlockers]

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.

Mine also comes out of net.

It is a scheme called ESPP.
"An employee stock purchase plan (ESPP) is a company-run program in which participating employees can purchase company stock at a discounted price. Employees contribute to the plan through payroll deductions which build up between the offering date and the purchase date."

The idea is that you pay tax on the value to buy the shares through pay roll, and then when you buy the shares, you owe tax on the benefit the employer adds. Some employers offer a scheme where they then sell a fraction of the shares to cover the tax, so you never "see" that tax.

 

[1pudding1]

It actually says in your extract you've quoted - 'decide what percentage of your gross salary'. So what makes you think it's net? - Edit, just noticed the next reference is to net. Hmmm....confusing.

 

[dowie]

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.

Fair enough but you pay tax on any other gain too (at least beyond CGT limit), so if the contribution is net and there is not tax benefit there then yeah you're right not a 50% gain net of tax, it's still a significant % of free money though.

IMO it's a gamble either way - there is the opportunity cost of not participating in this thing, there is a significant edge to participating, personally, I'd look to max out my contribution then cash out a chunk of them as soon as I'm able to.

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.

I'm not sure how you can worry about a small investment (with a significant built-in edge/free money) as being a "gamble" when your employment with them is the far bigger gamble here.

 

[Royal Fleet]

I have to say I still find the implementation of this strange and if correct I would probably share the OPs view. To be buying shares from Month 1 but not being able to sell them until Month 12 whatever trajectory they are on would make me nervous.

@Dirk Diggler The wording where you mention the monthly transfer to the service provider is a little ambiguous in my opinion. I could see it would be interpreted as they then buy the shares monthly but it does not explicitly say this. It could be that the company transfer the money monthly but the service provider then save it until the 12 months and then buy the shares. The company may want to make it clear they are not sitting on the cash - the service company is.

I just think it is a strange way to do it so it may be not as interpreted.

 

[dlockers]

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.

This.

You have a 25 year mortgage presumably on your ability to pay it off thanks to employment with this Org.

Shares are a long term strategy made more appetising by the employers contribution, so you should always be better off. Hopefully the organisations long-term goals land when yours do.

 

[dlockers]

I have to say I still find the implementation of this strange and if correct I would probably share the OPs view. To be buying shares from Month 1 but not being able to sell them until Month 12 whatever trajectory they are on would make me nervous.

@Dirk Diggler The wording where you mention the monthly transfer to the service provider is a little ambiguous in my opinion. I could see it would be interpreted as they then buy the shares monthly but it does not explicitly say this. It could be that the company transfer the money monthly but the service provider then save it until the 12 months and then buy the shares. The company may want to make it clear they are not sitting on the cash - the service company is.

I just think it is a strange way to do it so it may be not as interpreted.

Reading between the lines but the way our system works is, you contribute, shares are bought twice a year, so obviously you can't sell shares unless you own them. You can however opt out at any point and "cash out" what you paid in. However, you can only enroll once a year.

Probably best OP to speak to a colleague of yours who has experience in this, rather than us guessing.

 

[Pudney]

This is a fun thread to watch people post in.

To the OP: from the very little real information you've provided I'm 80% confident this is an unapproved share scheme, so references to things like SAYE (an approved scheme) will be misleading.

To others: "unapproved" bears no sinister meaning, just differentiates between schemes with tax advantages and those which don't.

 

[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.