In our experience advising private companies sector-wide, one key challenge often voiced by business owners and leadership teams is the ability to attract, motivate, and retain top talent. This is especially evident when trying to keep key employees who are integral to driving growth and innovation on board and committed to the business.

While competitive pay, robust incentive programmes, and fostering an enriching work culture are all pivotal elements, share ownership schemes that align employee fiscal interests with company performance have emerged as a powerful tool. By granting employees tangible stakes in the company they have helped build and shape, such schemes accomplish those very goals and then some, by providing financial remuneration to employee investors.

As corporate tax advisory and share plan implementation experts, we are well-versed with the various approved employee share schemes available in the UK, including their eligibility rules, tax benefits, and operational formalities involved.

If you are considering deploying a share scheme throughout your private enterprise, consider those outlined below.

Company Share Option Plans (CSOPs)

Among the most popular and tax-efficient employee payment schemes, CSOPs allow companies to grant employees or full-time directors options over shares worth up to £60,000 at the time of issue (which is double the amount eligible if granted before April 2023).

There are no limits on company size or amount of employees, and any gains made by individuals are exempt from income tax and National Insurance if the options are held for at least three years. Capital Gains Tax (CGT) is only applicable to the difference between the market value of the shares on sale and the exercise price, but annual exemption and other tax reliefs may apply.

Enterprise Management Incentives (EMIs)

Specifically intended to help trading companies with growth potential recruit and retain key employees with specific skill sets, EMIs are highly tax-efficient share option plans. Provided that companies have gross assets of £30 million or less, and fewer than 250 employees who work 25 hours minimum per week (or spend 75% of their total working time for the firm), among other criteria, they are eligible for EMIs.

The limit on total values of options that can be granted under EMI is £3 million, and CGT at 20% is only payable on the sale of the shares (unless options are held for 24 months). It’s worth noting that market values of shares can be agreed in advance under EMI rules.

SAYE (Save as You Earn) or Sharesave Schemes

These tax-efficient cash-saving schemes enable all employees to save out of their gross pre-tax salaries (over a 3–5-year period) towards buying shares in the company. Once the saving period ends, they have the option to buy shares or take out savings as a lump sum with interest.

Eligible companies must be publicly listed on the stock exchange, such as the FTSE, or owned by such a firm. Saving under these schemes is low risk, with employees setting the amounts they want to save each month themselves. No income tax or National Insurance is charged if you buy shares, but CGT may be payable on the sale of shares. If you decide to hold onto shares with companies paying dividends to shareholders, you may be subject to dividend tax.

Share Incentive Plans (SIPs)

SIPs allow companies to gift employees up to £3,600 worth of free shares annually, or from gross pay on a discounted basis. All these shares are held in a private trust for a minimum of 3 years and up to 5 years, with shares forfeiting if employees cease employment within three years from purchase dates. Tax relief will be limited if shares are withdrawn before five years.

Alongside free shares, employees may be also invited to buy partnership shares (via deductions from pre-tax salary and NICs up to £1,800), matching shares (up to 2 free matching shares for each partnership share purchased), or dividend shares (which can be reinvested into further shares).

Distinct Advantages for Different Scenarios

As the guidance above illustrates, there is no universal one-size-fits-all employee share scheme, with each type offering different tax benefits, planning flexibilities, and commercial advantages for companies. Selecting the most suitable incentive scheme calls for a qualified objective analysis weighing your firm’s long-term strategic vision, tax profile, and workforce size.

At Hamlyns, our corporate tax and remuneration experts can guide you through evaluating existing approved schemes, choosing the most suitable solution based on your objectives, and efficiently implementing the plan in line with HMRC rules and timelines. We ensure tight administration and reporting processes are instituted to accurately track share awards, valuations, and taxes payable.

Get in touch with our corporate tax and accounting consultants in Surrey to understand which custom share plan best drives your business vision and workforce aspirations.