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Tax-Advantaged Employee Share Schemes: Analysis of Productivity Effects

Source: HM Revenue & CustomsĀ 

Oxera was commissioned by HM Revenue & Customs (formerly the Inland Revenue) to examine the impact of tax-advantaged share schemes on UK company performance (whereby companies reward their employees by granting them shares, or share options, as part of their remuneration package). Many companies reward their employees by granting them shares – or share options – as a complement to their earnings, thereby giving employees a personal stake in the company's future performance. By offering tax advantages to employees involved with such schemes, it is hoped that participation can be increased, leading to growth in productivity and employment.

Such employee share schemes are a subject of public policy concern – in particular, is the cost of these schemes warranted in terms of the benefits to the economy? On the one hand, tax-advantaged share schemes are costly to the government – the cost of the schemes to the Exchequer was estimated at around £800m per annum in tax and National Insurance relief in 2002/03. On the other hand, such incentives are currently deemed to be warranted because share schemes are associated with increased productivity and employment in the firms concerned.

This study (comprising two separate reports) presents new empirical research into employee share schemes in the UK, drawing on HM Revenue & Customs' own administrative data on share schemes. In Report 1 this data has been matched with financial information, providing a rich dataset of thousands of companies over a ten-year period, thus facilitating a quantitative and methodologically sound assessment of these schemes. The empirical research focuses on the following tax-advantages share schemes:

- Approves Profit Sharing (APS);
- Save As You Earn (SAWY);
- Company/Discretionary Share Option Plan (CSOP/DSOP).

Report 2 has examined the productivity effect on gross value added to assess how sensitive these results are to the use of financial data.

The research addresses the following questions:

- what are the characteristics of companies that operate these tax-advantaged employee share schemes in the UK?
- what is the impact of these tax-advantages schemes on companies' productivity performance?


Link: None
Publication Date: 2007-08-01
Pages: 4