Sharing your business - the John Lewis way - Business Works
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Sharing your business - the John Lewis way

by Martin Crook, Partner, Adams Moore Attracting and retaining good staff is key to smooth business operations. Training employees can be a costly exercise and time consuming for a business, so if they leave it means not only that this investment is wasted, but it is also a disruption to the business and adds costs for recruiting and training new staff. Martin Crook, a partner at Adams Moore, discusses employee share ownership as an interesting options.

Businesses have long been faced with the constant challenge of employee retention and a variety of schemes to make them feel valued and to reward them are usually employed. Whether itís a company car or health insurance, these incentives can work well, but giving employees shares in the business goes that one step further. Employees who have a share in the business feel empowered, valued and are more likely to be much more productive Ė a theory that has been supported many times over in various studies both in the UK and the US.

But who needs these studies? One of the most successful upmarket retailers of the current time and the third largest privately-owned business in the Sunday Times Top Track 100 is testament to this tactic. John Lewis is a business which is owned by a trust on behalf of its employees. These employees have a say in the running of the business and receive shares of the profits annually Ė a great salary bonus!

So whilst you may not be one of the UKís top businesses, if you want to follow the John Lewis way, thereís no reason why you canít.

The best route to employee share ownership is Enterprise Management Incentives (EMI), which is designed to allow employees the opportunity to gain shares. This route needs to be carefully planned to avoid potential problems with tax, as employees wonít see the benefit of shares that will incur a larger tax bill and negate the benefit! Shares given to employees are treated as earnings and therefore taxable, which could cause them to owe tax they canít afford to pay. Granting the shares can be a better option, as the employee can obtain them at a later date and tax liabilities can be deferred. This gives the employee the option to sell some of the shares to cover the tax if needed.

There are some variables and rules around when the share options have to be exercised by, as there is a ten year period from the date of the grant to when the shares have to be taken, with no tax or NIC payable during this period as long as the share value doesnít increase. There is also a market value limit on the shares granted to any one employee of £250,000.Employees exercising their share option can immediately sell them if they wish, or retain them for a little longer before selling them, but this would incur capital gain tax (CGT) on any value increase.

The benefits to you as the employers in this scenario, alongside the obvious incentivising and motivation of staff, is that the option doesnít cost anything to offer. When compared to offering a salary rise, this can be a much more attractive option for businesses. There is also a deduction in corporation tax to consider.

However, be sure to have a checklist when considering this option. Firstly, check your company qualifies. There are some qualifying criteria and any savvy business should employ a professional to guide them through this process. This will also help when deciding eligibility of employees and who should be issued with share options Ė as this is subject to wide criteria too.

Share options might not be right for every business, but as a cost-effective option to incentivise staff Ė and in the absence of funds to splash out on company cars and other bonus packages, itís certainly one to consider.

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