Different companies will implement employee share schemes for different commercial or cultural reasons. Employee share schemes are normally implemented for the following reasons:
- Allowing employees to own shares gives tangible ownership in the company;
- Share ownership aligns the employees interests with that of the company;
- They encourage employees to think, feel and act like owners as they can create a link between better business outcomes and performance and increased share value and dividends for individuals;
- Employee share schemes might be used to attract, retain and motivate employees;
- They can provide significant tax savings for both company and employee whilst offering long term reward.
It’s vital that you consider what you want to achieve before deciding on whether or not to implement an employee share scheme.
Co-ownership Solutions have worked with a number of businesses to help them identify their objectives and then implement a scheme with achieves these objectives.
We have a track record of establishing schemes and explaining the benefits to employees. We are happy to meet at client’s offices, or at our London office, without charge or future obligation. Please contact us for an initial discussion.
What options are open to me?
Once you’ve clarified why you want to implement an employee share scheme the next step is to consider the different incentive options available. Share schemes can be structured to incorporate all, or a mix, of the following 3 main aspects:
- A gift of shares – the employee immediately becomes a shareholder as a result of receiving shares, free of charge, in the company. The employee, as a shareholder, benefits from dividends and any increase in the share value. In most instances where an employee is given something of monetary value, such as shares, by their employer this will be treated as a benefit in kind and the employee will be subject to income tax and national insurance contributions and the company will be subject to employer’s national insurance contributions.
- Employee share purchase schemes – employees buy shares from the company, Share Incentive Plan, or Employee Benefit Trust and, as shareholders, can benefit from dividends and any increase in the share value.
- Share options – the employee has the right to purchase shares in the future at a predetermined price. There is little risk for the employee until the shares are bought. If the price increases the employee exercises the option, if the price decreases the employee can decide not to exercise the option. The employee doesn’t become a shareholder until they exercise their option.
The shares used in the above may come from existing owners either selling their shares or agreeing to make their shares available for an ‘option’, or as a result of the company issuing new shares subject to shareholder agreement at the time or at a later date.
There are a number of HMRC tax advantaged share schemes that incorporate the above options and make it easier for employees to acquire and own the company’s shares, or be granted options for shares, in a tax effective manner.
Tax efficient share schemes
There are currently four HMRC approved tax advantaged share schemes that might be considered by a company. (Click on each for more information about how they work):
- Share Incentive Plan (SIP) – offers tax and national insurance advantages for employee gifted and purchased shares.
- Save as you earn share (SAYE) option scheme – employee share ownership via options.
- Enterprise Management Incentive (EMI) – option scheme designed to help smaller companies retain talent.
- Company Share Option Plan (CSOP) – Allows options to be granted to selected senior staff.
How can we help?
If you are exploring employee share schemes, we can help you to identify the most appropriate scheme to suit your objectives. We have a track record of establishing schemes and explaining the benefits to employees. We are happy to meet at client’s offices, or at our London office, without charge or future obligation. Please contact us for an initial discussion.