By James Fraser, Tax Partner, Armstrong Watson LLP

PROVIDING employees with shares or share options can often be a way to motivate, retain and reward key employees of your business.

There are a number of ways in which a business can structure employee share schemes, and when deciding which to implement it will depend on the circumstances and what the core objectives are.

HMRC has approved share schemes that not only provide a means of motivating, retaining and rewarding employees, but also offer tax advantages to both the employee and employer. These can be summarised as follows: Enterprise Management Incentives (EMI); Company Share Option Plans (CSOP); Share Incentive Plans (SIP); and Save As You Earn (SAYE).

Certain conditions must be satisfied in order to implement each of the above HMRC approved schemes, for example, SIP and SAYE schemes must be offered to all employees and EMI schemes cannot be implemented by companies with more than 250 full-time equivalent employees.

Ensuring the relevant legislative conditions are met, and the relevant implementation steps are followed is fundamental to obtaining the preferential tax treatment offered by the approved schemes. It is therefore important that appropriate tax advice is obtained before implementation. Where the company cannot utilise one of the HMRC approved schemes, there are several other cost-effective ways key employees can be incentivised through share ownership. An example of this would be growth shares which are often used for companies with high growth aspirations. In essence, a growth share is a separate class of incentive shares that entitles participating employees to share in a proportion of the future growth in value of a company, thus aligning the employees’ objectives with that of the company. There is also nothing to stop a company issuing growth shares through an HMRC approved scheme.

Employee Ownership Trusts are also becoming increasingly popular for businesses with a strong people culture. In essence, the trust acquires the shares in the company and holds these for the benefit of the current and future employees. This can provide significant benefits for the exiting shareholders, along with providing ongoing benefits for the employees. As can be seen from the above, there are a variety of options available when it comes to employee share schemes and therefore a one size fits all approach isn’t appropriate.

For information, phone James Fraser on 07793 621979 or email