Employee share plan options

Enterprise management incentives (EMI) share options

EMI options enable you to incentivise your team to grow the company with little to no expense. They are one of the most effective types of employee reward schemes. EMI’s give your employees the opportunity to benefit from company growth and better align with other shareholders’ goals.

These options can strengthen your recruitment and retention in several ways thanks to numerous benefits, including: 

• greater employee incentivisation and rewards; 
• employee tax on gains is deferred up to 22 months after the employee sells the shares; 
• performance conditions that can directly link rewards to performance; 
• no income tax liability on the growth in value and the possibility of Business Asset Disposal Relief (previously Entrepreneurs’ Relief) on disposal; 
• no loss of control for existing shareholders; 
• succession planning for existing shareholders; and 
• corporation tax deduction for the employer company equal to the employee’s gains. 

Our experienced team can help you to create and implement the right EMI plan for your business, so you and your employees get the most out of the options available to you. 

Company share option plans (CSOP)

CSOPs are statutory share incentives that allow you to grant tax-advantaged share options to employees you select. There are a few key points to be aware of. 

• You must register your company’s CSOP and self-certify that it meets conditions to qualify for favourable tax treatment by 6 July following the tax year in which an award is made. 
• CSOP options can allow each employee and full-time director to buy shares with a total market value of up to £30,000 at the time of the award (including any current EMI options). 
• The price of the shares must not be less than market value at grant. 

Share incentive plans (SIPs)

A share incentive plan is a tax efficient way of giving employees shares. These plans can provide employees with up to £9,000 worth of shares each year, potentially tax-free, while also increasing the employer’s after-tax profits.

There are three main types of shares available with SIPs:

• free shares; 
• partnership shares; and 
• matching shares.

As well as incentivising employees, businesses can claim relief on corporation tax for the value of shares provided under the plan.

We can work with you to develop, implement and manage the right share incentive plan for you and your employees. Our experts will also help you efficiently navigate the tax landscape to maximise your plan’s offerings. 

Save as you earn (SAYE) share option plan

Under a SAYE share option plan (Sharesave), employees can pay directly into a savings account via payroll and use them to buy shares through an option scheme. They can also opt to withdraw the savings for other uses, giving them more flexibility. You should consider the following key points.

• You can create the option for employees and directors to buy shares in three- or five-years’ time based on the market value of the shares at grant, or with a discount of up to 20%.
• All employees must be offered the chance to participate, but you can include an employment qualifying period of up to five years.
• Employees must make payments between £5 and £500 into the savings contract on a weekly or monthly basis. Some payment holidays are allowed to cover special situations. All payments are deducted from salary or wages net of income tax.
• There is no tax liability for qualifying options used within six months of the end of the savings period or if an option holder’s employment ends for injury, disability, retirement, redundancy or because of a take-over or certain other corporate events.
• When shares are sold or transferred, normal capital gains tax rules apply.
• Shares gained under an SAYE scheme can be transferred tax-free into an ISA or a stakeholder pension within 90 days of the purchase.

Employee ownership trusts (EOT)

Employee ownership trusts enable business owners to sell their controlling interest in a company to a trust for the benefit of employees. With this arrangement, the owner will usually receive tax relief and there are potentially tax-free bonuses for the employees too. 

Successful examples of this process include John Lewis, Richer Sounds and Arup. Each employee-owned company is different, and the structure should reflect the culture and ambitions of the organisation.

Employee ownership trusts are usually used as an exit strategy for controlling shareholders, but they are also an effective incentivisation tool. Once established and the shares have been transferred, the company can pay additional rewards to employees in the form of tax-free bonuses of up to £3,600 a year. Transferring shareholders may sell their shares to an employee ownership trust and claim exemption from tax on all capital gains.

The following key points should be considered. 

• Most of the company’s ordinary shares will be transferred when the employee ownership trust is created. Transferring shareholders, the company and the trustees acquiring the share must receive specific tax and legal advice. 
• Communication with employees, trustees and the current shareholders is a vital part of establishing employee ownership trusts and should be built into the planning. 
• Original or family shareholders can stay involved through management committees or representation on the board of trustees. 

We can provide support with all aspect of employee ownership trusts, including: 

• setting up the trust; 
• helping owners find finance; 
• legal drafting of documentation and sale agreements; and 
• structural advice on the governance structures, e.g., employee councils.