Geared growth arrangements ― where are we now?

Produced by Tolley in association with Karen Cooper of CooperCavendish LLP
Geared growth arrangements ― where are we now?

The following Employment Tax guidance note Produced by Tolley in association with Karen Cooper of CooperCavendish LLP provides comprehensive and up to date tax information covering:

  • Geared growth arrangements ― where are we now?
  • Joint share ownership plans (JSOPs)
  • Growth / flowering / freezer / hurdle schemes
  • Anti-avoidance through tax-advantaged CSOP
  • Partly paid / deferred payment schemes

There are a number ofequity schemes which companies offer to their staff to drive performance and to reward loyalty which are not government-supported. These are known by a variety ofnames, including: growth, flowering or freezer schemes and joint ownership arrangements. In the main they are used to deliver equity in a way which falls within the capital gains tax (CGT) regime rather than participants being subject to higher rates ofincome tax and National Insurance contributions (NICs).

Very often companies will look to implement these types ofscheme where traditional tax-advantaged employee share plans such as Enterprise Management Incentive schemes (EMI) or Company Share Option Schemes (CSOP) are not available. For example companies may be too large to offer EMI (because they have more than 250 employees (on a group basis)) or have balance sheet assets in excess of£30m. With CSOP, whilst there is no longer any prior approvals process with HMRC, the need for companies to meet various tests in relation to both their share capital and the design ofthe scheme, coupled with the relatively modest limit of£30,000 ofshares under CSOP option, may act as a deterrent.

These alternative schemes have come under HMRC scrutiny as part ofthe drive to curb anti-avoidance in relation to employee reward. In June 2010 the coalition government announced that arrangements involving geared growth would be subject to consultation and possibly anti-avoidance legislation, although this process has currently been deferred and appears to have been shelved indefinitely.

Joint share ownership plans (JSOPs)

This type ofscheme can be operated by private or listed companies and their key features are as follows:

  1. employees acquire an interest in a fixed number ofshares that are then held jointly with the trustee ofan offshore EBT

  2. the trustee holds the legal title to the shares and both parties have a beneficial interest in the jointly held shares

  3. the EBT is entitled to the current value ofthe shares,

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