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JSOP or Joint Share Ownership Plan

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Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

JSOP or Joint Share Ownership Plan

Overview of JSOP

A Joint Share Ownership Plan (“JSOP”) is a non-statutory, or unapproved (not this does not share scheme that offers a tax advantage for employees.

A JSOP provides the opportunity for an employer to incentivise and reward key employees, whilst aligning the participants interests with those of the company’s current shareholders and stakeholders.

A JSOP is open to all companies, whether listed or unlisted and does not require a complex, cumbersome and potentially expensive alteration of existing share rights (which can be a problem over other similar concepts such as growth or flowering shares).

Please note that the JSOP should not be confused with GSOP.

How does JSOP work?

The company selects the employees it wishes to include within the JSOP.

Once the Participants are selected, a co-owner (usually an employee benefit trust (EBT) or another Company in the group) and the Participant enter into an agreement to jointly acquire shares in the employer company.

The agreement will be prescribed by the employer and will set out the ownership structure of the shares.

Usually, the agreement will provide that the EBT is beneficially entitled to the value of the base cost of the shares, plus the costs attributable to the administrative costs of the trust. The employee will then be entitled to any value realised above that.

Alongside the base cost and administrative costs, the employer may also wish to include other targets, conditions or criteria to satisfy before the shares can be sold, if it so wishes.

Overall, the participating members are incentivised by the carrot of a participation in the future growth in the employer company.

This reward will usually crystallise on a sale of the Company or will vest on the expiration of a set period.

JSOP – Tax Considerations

Where the employee does not purchase the shares at market value, the employee will be taxable on the market value of the shares (less anything paid, if applicable) and this will be subject to employment taxes (income tax and NICs).

Conversely, where the shares are purchased at market value by the employee, the employee will not be taxable on the allotment of the shares and any growth should be subject to the capital gains regime.

Unlike other share schemes, the employer will not be entitled to a corporation tax deduction on the allotment of the shares.

Where the company is listed, the employer will pay national insurance on the allotment of the shares, where the employer did not purchase the shares at market value.

Whilst the shares are held by the co-owner, there will be no tax implications for the employer or employee.

On the disposal of the shares, the employee will be chargeable to capital gains tax (CGT) on any gains made on the shares. CGT on shares will be payable at a maximum of 20%.

JSOP Example

Mrs. A is an employee at Y Co.

Y Co has decided that it wishes to incentivise and reward Mrs. A and therefore, has asked Mrs. A whether she would like to participate in the company JSOP.

In 2015, Y Co issued 50,000 ordinary shares with a market value of £1 per share. A trust established by Y Co and Mrs. A entered into a co-ownership agreement specifying:

  • The trust will legally hold the shares;
  • The trust is entitled to the purchase price, plus 5% administrative costs per annum and Mrs. A is beneficially entitled to the excess growth in the value of the shares;
  • The shares cannot be sold for a minimum of 3 years or on sale of the Company if earlier.

The Trustees paid £1 per share at the time of allotment, totalling £50,000.

In 2020, following 5 successful years at Y Co, Mrs. A would like to sell her shares. The shares are now worth £2.50 per share. On the sale of the shares to the Trustees, Mrs. A would receive £62,500 (£125,000, less £50,000 cost, less 5% administrative costs x 5 years).

The £62,500, after the application of the Annual Exemption, would be taxable at a maximum of 20%. It is unlikely that Entrepreneurs Relief would be available on a sale.

 

If you or your clients would like any advice or assistance in relation to JSOP’s or other share incentive schemes more generally, please contact us at info@etctax.co.ukor on Cheshire – 01925 363006, Manchester – 0161 711 1310 or London – 0203 0111355.

 

JSOP was last updated on 23 May 2019

 

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