6.9.2022 | Tax

An overview of employee share schemes

Worth a consideration –  schemes can aid staff retention and recognition plus incentivise employees.

So, where to start?

Beatons can offer comprehensive advice on share schemes and the merits of each type, but here, Head of Taxation Andrew Diver provides a simple overview of some of the main options.

Enterprise Management Incentives (EMI)
This is one of the most common and flexible schemes used in different scenarios, such as the immediate issue of shares, issuing when performance targets are met, or the issue of shares in the event the company is sold.

Some of the main benefits are:
• Offers higher limits than other schemes and can grant up to £250,000 in options in a 3-year period.
• Price is agreed with HMRC at the beginning of the scheme, ensuring the tax costs are known.
• There is no income tax or National Insurance Contribution (NIC) on exercise of the option.

Less frequently used share schemes
• Company Share Option Plan (CSOP): These are generally used in large, quoted companies as the maximum value of options are unlimited. However, there are greater restrictions on the holding period of the options (3-10 years) to obtain tax advantages.
• Share Incentive Plan (SIP): These are for smaller share values, though they provide advantages when issued to a larger number of employees. This means they are generally used for bonus scheme arrangements for larger companies.
Save As You Earn Schemes (SAYE): This is more of a savings scheme with regular purchases of shares offered at a discount over a 3-to-5-year period. These are generally used by larger companies but can be useful for smaller ones to create a marketplace for share purchases and sales.

Employee Ownership Trust (EOT)
This is the newest share scheme and is usually considered to help assist a current owner with their exit from the business.

An Employee Ownership Trust enables the sale to be capital gains tax-free and for the employees to take control of the company. Employees do not have to personally find the money to buy the shares as the Employee Ownership Trust will purchase shares either by borrowing or using company profits. Key points to consider are:
• More than half of the company shares need to be owned by a trust.
• Once owned by an EOT, a company can issue annual bonuses to the staff of £3,600 tax-free.

It is vital that all the necessary documentation for the share arrangements – from the initial agreement of the scheme and valuations – through to ongoing reporting and Employee Related Share returns regulations are carried out correctly to avoid penalties or even the clawback of tax benefits should the scheme be cancelled by HMRC.

Don’t hesitate to contact Beatons, who can assist with expert advice for your business. Email info@beatons.co.uk or call 01473 659777.