Share Guide: Schemes for Key Employees

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We set out below an at-a-glance comparison of some key ways in which your company’s key employees could become shareholders or have an ownership interest in your company

EMI share options
TAX EFFICIENCY (INDIVIDUAL)
TAX EFFICIENCY (COMPANY)
EASE OF SETTING UP
OVERALL INCENTIVE AND REWARD VALUE
5 Stars
No income tax (IT) or National Insurance (NICs) unless disqualified. CGT on sale of shares, potentially at 10%.
4 stars
Corporation tax (CT) deduction on option gains. No NICs.
4 stars
No pre-clearance necessary although option grants must be notified to HMRC.
5 Stars
Very simple to explain, no risk, very tax efficient. Limited to £250,000 of shares per person.

 

Company Share Option Plan (“CSOP”)
TAX EFFICIENCY (INDIVIDUAL)
TAX EFFICIENCY (COMPANY)
EASE OF SETTING UP
OVERALL INCENTIVE AND REWARD VALUE
4 stars
No IT or NICs for certain “good leavers”
3 Stars
CT deduction on option gains. No NICs if options held for at least three years.
3 Stars
Must be registered with HMRC and self-certified.
4 stars
Simple to explain, no risk, tax efficient. Limited to £30,000 of shares per person.

 

Non-tax-advantaged share options
TAX EFFICIENCY (INDIVIDUAL)
TAX EFFICIENCY (COMPANY)
EASE OF SETTING UP
OVERALL INCENTIVE AND REWARD VALUE
1 Star
No IT or NICs for certain “good leavers” or if option is held for at least three years. CGT on sale of shares.
3 Stars
CT deduction on option gains. No NICs if options held for at least three years.
5 Stars
Must be registered with HMRC and self-certified.
2 Stars
Simple to explain, no risk, not tax efficient.

 

Growth shares
TAX EFFICIENCY (INDIVIDUAL)
TAX EFFICIENCY (COMPANY)
EASE OF SETTING UP
OVERALL INCENTIVE AND REWARD VALUE
4 stars
No IT or NICs if shares purchased for market value. CGT on sale of shares.
2 Stars
No CT deduction if shares purchased for market value. No NICs on same condition.
2 Stars
Requires change of Articles to create new class of share.
2 Stars
Simple to explain, little risk, tax efficient – but its value as a reward will depend on how high the hurdle is set.

 

Share purchase
TAX EFFICIENCY (INDIVIDUAL)
TAX EFFICIENCY (COMPANY)
EASE OF SETTING UP
OVERALL INCENTIVE AND REWARD VALUE
3 Stars
No IT or NICs if shares purchased for market value. CGT on sale of shares – but shares must be paid for at some point.
2 Stars
No CT deduction if shares purchased for market value. No NICs on same condition.
5 Stars
Usually just a subscription letter.
2 Stars
Simple to explain. There is economic risk, but tax efficient.

 

Restricted shares
TAX EFFICIENCY (INDIVIDUAL)
TAX EFFICIENCY (COMPANY)
EASE OF SETTING UP
OVERALL INCENTIVE AND REWARD VALUE
1 Star
ITs and NICs on vesting – but participant and company may elect to pay this upfront. CGT on any further gains between exercise and sale.
3 Stars
CT deduction on vesting. NICs may be transferred to participant.
4 stars
Often operated with an employee trust.
2 Stars
Simple to explain, no risk, not tax efficient.

 

Joint Ownership
TAX EFFICIENCY (INDIVIDUAL)
TAX EFFICIENCY (COMPANY)
EASE OF SETTING UP
OVERALL INCENTIVE AND REWARD VALUE
3 Stars
No IT or NICs if interest purchased for market value. CGT on sale of shares.
2 Stars
No CT deduction if interest purchased for market value. No NICs on same condition.
1 Star
Usually operated with an employee benefit trust. Other documents also required.
3 Stars
A little more complex to explain than other schemes, little risk, tax efficient.

 

Bonus paid by indirectly employee-owned company
TAX EFFICIENCY (INDIVIDUAL)
TAX EFFICIENCY (COMPANY)
EASE OF SETTING UP
OVERALL INCENTIVE AND REWARD VALUE
4 stars
Up to £3,600 may be paid to employees free of income tax.
2 Stars
CT deduction generally available. No NICs exemption.
1 Star
Bespoke trust documents usually required.
3 Stars
CGT benefits available for shareholders selling to employee ownership trusts.

If you would like to explore how an employee share scheme might be introduced in your company, please contact us for an initial discussion.

We are happy to meet at our offices without charge or commitment and will be very pleased to hear from you.

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