Profit Related Pay (PRP)
Profit Related Pay (PRP) - allowing workers tax-free payments linked to the profitability of their company - was phased out in 2000. It had first been introduced in the 1986 Budget.
The idea behind Profit Related Pay was that workers would have a direct interest in how well their company was doing, allowing tax-free payments to be made to employees based on the increased profitability of the company.
Originally, the scheme allowed for a maximum annual tax-free payment of £4,000 or 20% of salary, whichever was the lower. However, the ceiling was reduced to £2,000 for accounting periods beginning on or after January 1, 1998, to £1,000 for accounting periods beginning January 1, 1999, and was withdrawn for accounting periods starting on or after January 1, 2000.
The PRP scheme was replaced in the March 2000 Budget by All-Employee Share Plans (AESOPs), relaunched in November 2001 as Share Incentive Plans (SIPs).
However, PRP has not gone away as an issue. An alliance of employee-owned firms, mutuals and co-operatives led by the John Lewis Partnership is lobbying for a change in the tax structure. Such businesses are unable to take advantage of current tax concessions and want to be allowed to create a special class of shares.
To safeguard from hostile takeover, holders of such shares would have no voting rights and would not exercise control over the future ownership of the business.