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Just one slight point of clarification to Fishcakes post... If the posties shares are sold early the tax liability transfers from the value of contributions made to the value of the shares at the time of sale, as I found out to my cost (although it still wouldn't have stopped me from leaving the business when I chose to)
Seems a very unfair practice to me, just a form of stealth CGT that only applies to people who partake in an employee share scheme but for reasons sometimes out of their control find they can't remain in the business for the required length of time.
Fishcake
"Hope this answers the question"
Many thanks. It does indeed and excellent first post.
Employees contribute out of their gross pay, either weekly or monthly, which means the contribution is free of NI or tax. I guess this means that In effect the shares are bought at circa 33% discount and RM match up to two shares based on number bought, which push the discount further to 40% ish discount. The max contribution is £100 a month.
Because of the advantageous tax arrangement the shares must be held for 3 years minimum, (Locked In Shares) unless the employee leaves the business at which point they are sold and subject to NI and tax being paid on the contributions made.
They can be sold between 3-5 years (Conditional Shares) but are subject to NI and tax iand after 5 years (Available Shares) they can be sold without having to pay NI or tax.
The cash employees contribute from pay is held until around the 15th of the following month at which point shares are bought, I believe on the open market at whatever the price at that time.
Any surplus cash is held forward to the following month (where there is cash but not enough for a full share).
The scheme is administered by Equiniti and the employee booklet is available online if you search online for Royal Mail SIP, which includes the above info. Hope this answers the question.
Scamp, do RM actually have to purchase the shares or just pledge those shares in the hope that not everyone is going to cash in at the same time? Perhaps RM purchase shares in advance? It would certainly have been prudent for RM to purchase serious volumes of shares at sub £2 last year in the knowledge that they would eventually need to then allocate these back to the share scheme anyway and in the process making a profit?
Just a thought.
Not sure how it works regarding such a large amount of shares when buying so many at one time.
Does a broker have to ring around several days in advance to see who will pledge the shares on the specific buy date? (15th)
Not even aware of actually how many posties actually buy them each month.
Just as a complete guesstimate (probably miles off in all fairness) I use a figure of one in four.
140, 000 (uk) divided by 4 = 35,000. Times that by £92.28 = £3,229,800.00 divide by say £4.20...and that equals 769 000 shares.
That's a lot of shares to find and buy in one lump. And it may well be considerably more.
Would a buyer receive this amount at a slightly discounted price? There again...perhaps not.
Thinking more about it, it would certainly explain why the share price always rises as we head into the 15th. If people have to be persuaded to part with their shares they would most certainly want above market value...especially if they thought they could be on the up.