UHY Ross Brooke Chartered Accountants

Employee share schemes

General

A company’s desire to give or sell shares to its employees may arise from a variety of objectives which can include:

  • Incentivising employees to achieve better performance;
  • Attracting and retaining staff, particularly in start-up situations where companies have insufficient funds to provide adequate salaries;
  • Enhancing remuneration packages where this can be achieved tax efficiently;
  • Succession planning for major shareholders;
  • Raising equity funding, particularly in management/employee buy outs.

Why use a share scheme?

The outright gift of shares to an employee at less than market value constitutes taxable remuneration in the hands of the employee. The taxable amount is calculated as the difference between the market value of the company’s shares and the price (if any) paid for them and this will be subject to both PAYE and NIC if the shares are tradable.

This can mean that the employee has received shares on which he has to pay tax, but if he doesn’t have the cash to settle the tax liability he might have to sell some of his shares to do so.

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

The first three involve the use of share options. The fourth involves the employer giving a fixed number of shares free of tax and NIC.

Next steps

We have many years experience advising clients’ on the appropriateness and effectiveness of each. If you would like to discuss the possibilities available please get in touch.

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