How do businesses use tax advantaged share schemes to recruit and retain staff?

Smart businesses often use tax-advantaged share schemes as a means to recruit and retain staff, but what are they and how do they work?

Tax-advantaged share schemes, such as Enterprise Management Incentives (EMIs) and Share Incentive Plans (SIPs), allow businesses to offer employees the opportunity to own a stake in the company. By granting employees the chance to become shareholders, businesses align their interests with those of their employees, encouraging a culture of shared objectives, where employees are more invested in the company’s success and its long-term sustainability.

Share schemes provide a powerful motivational tool because when employees have a personal stake in the company’s success, they are often more motivated to perform well and contribute to its growth. The prospect of receiving a financial benefit from the company’s success can significantly enhance employee loyalty and retention, and also make competitors appear much less attractive as potential employers.

Tax-advantaged share schemes offer tax benefits to employees, making them an attractive perk. For example, under the EMI scheme, employees can be granted share options up to a particular value, and if certain conditions are met, they can benefit from favourable tax treatment on the growth in the value of those shares. This tax advantage increases the overall value of the employee’s compensation package and can serve as a powerful recruitment and retention tool.

Startups and smaller businesses often find it challenging to attract top talent when competing with larger, more established companies. Tax-advantaged share schemes can level the playing field by providing a unique and potentially lucrative employee benefit that larger companies may not offer. This can help smaller businesses attract high-calibre employees who are looking for growth opportunities and potential financial rewards.

Share schemes typically have vesting periods, which means employees need to remain with the company for a certain duration to fully benefit from the scheme. Long-term commitment is therefore encouraged, and helps retain key employees, as they have an incentive to stay with the company to maximize their potential gains.

They can also be a useful tool for business succession planning, offering reassurance of a long-term relationship between the company and key members of staff.

Even though the numerous tax-advantaged share schemes and employee benefit schemes appear complicated to the business owner, we would encourage you to look into them, as with the right professional advice and support, your employee motivation, recruitment and retention issues can be improved, and your bottom-line made healthier.

Of course, tax rates, benefits and the employee share schemes themselves change over time, so check with our business tax specialists to discuss your best options.

Next steps

Get in touch for a free consultation about employee share schemes

Find out more about:

1. Approved Share Option Scheme (CSOP);
2. Unapproved share option schemes;
3. Enterprise management incentives (EMI);
4. Share incentive plans (SIPs).