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Accountants & Tax Advisors
for Surrey & South London

Tax efficient ways to motivate, retain and reward employees
Expert advice on employee share schemes to attract the best talent for your company

An employee share scheme can be highly tax efficient whilst also being a powerful staff motivator having the effect of increasing employee productivity and business performance. Sharing the rewards of success with employees can be a cost effective way to remunerate staff and build long term loyalty. In short, an employee share scheme can encourage employees to think like business owners and become more accountable and productive.

RJP can identify the best share scheme to suit your company’s circumstances and objectives, prepare company valuations, put the scheme in place from start to finish, complete annual compliance paperwork, and advise you and your staff on the most tax efficient ways to run the scheme.

Identifying the right employee share scheme

The most effective share scheme, or share option scheme, for you will very much depend on the size of your company, the number of staff you wish to incentivise, the price you want them to pay for their shares and indeed whether you actually want them to own shares or to have just share options until the company is sold.

Once your wishes are known, we will advise on the pros and cons of the different schemes available.

What share schemes exist?

Whilst you are able to transfer shares directly to staff without operating a share option scheme, this will have quiet onerous tax consequences. Many companies prefer to use a tax advantaged share option scheme and there are a variety of HMRC approved employee share option schemes available to companies , each with their own aspects and qualifying criteria to consider:

Enterprise Management Incentive (EMI) Scheme

  • Highly tax efficient for companies with assets up to £30m;
  • Ability to select particular employees to participate;
  • Ability for the company to set targets before options can be exercised;
  • No income tax or NICs on grant of options;
  • On disposal of the shares, the gain is subject to capital gains tax, thus providing the ability for the employee to claim entrepreneurs’ relief;
  • No minimum shareholding required to qualify for entrepreneurs’ relief;
  • The 12 month holding period for entrepreneurs’ relief to apply commences 12 months after grant of the option, not acquisition of the shares, thus providing the employee with an opportunity to exercise the options the day before a trade sale and still qualify.

Company Share Option Plan (CSOP)

  • Ability to select particular employees to participate;
  • More complex to set up and administer than the EMI scheme; suitable for companies not qualifying to grant EMI options;
  • Options can only be granted over shares with a maximum value of £30,000 per employee at the date of grant.

Save As You Earn (SAYE or Sharesave) share options

  • All qualifying employees and directors must be eligible to take part on similar terms;
  • A period of up ti five years employment can be specified before staff can participate;
  • Options granted enabling staff to buy the company’s shares on 3, 5 or 7 years’ time at today’s price or at a discount of up to 20% of that price.

Share Incentive Plan (SIP)

  • Employees may be offered up to £3,600 of free shares each year with no tax or NICs payable;
  • They may buy up to £1,800 of ‘partnership shares’ each year from their pre-tax salary;
  • The employer may give up to two additional matching shares for each partnership share an employee buys;
  • Maximum possible combined entitlement in any tax year is therefore £9,000 per employee.

Attract the best talent to grow your business

Share schemes of all types have consistently been shown to be a powerful incentive for staff and a way for smaller companies in particular to attract the best talent to their businesses. Provided they are set up correctly they can be a useful tax planning tool and can be highly tax efficient. They are therefore worth considering as part of a long term business growth strategy.

Contact us for a free initial consultation to discuss the best employee share option scheme for your business objectives


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Did you know RJP LLP are licensed by the ICAEW to offer a full probate service.

This can save you time and money, plus we can advise on matters related to inheritance tax at the same time.