In the increasingly competitive job market, it is important for employers to attract and retain talented people to help them grow their business.
More and more key staff would like the opportunity to participate in the equity of the organisation that they work for and employers that do not offer such opportunities will be at a disadvantage when looking to retain and recruit.
In the case of companies, there are currently four HMRC ‘tax-advantaged’ schemes that provide employees and employers with income tax and National Insurance (NIC) advantages. These used to be referred to as “HMRC approved” schemes but HMRC, although helpful, no longer provide an approval service. The onus is now on the company or its professional advisers to ensure that the scheme complies with the specific legislation, which can be complex.
The four tax-advantaged schemes are currently:
- Share Incentive Plan (SIP)
- Save As You Earn (SAYE / Sharesave)
- Company Share Option Plan (CSOP)
- Enterprise Management Initiatives Share Option Scheme (EMI)
The most appropriate schemes for SMEs are the Company Share Option Plan (CSOP) and the Enterprise Management Incentives (EMI) share option scheme, as these are discretionary schemes which allow management to award options to selected employees and directors that the organisation is looking to incentivise. The Share Incentive Plan (SIP) and Save As You Earn (SAYE or Sharesave) schemes generally need to be made available to all employees after a qualifying period, which may not suit some smaller businesses.
Shares acquired under these four schemes are generally free from income tax and NICs. Depending on the scheme used, the employer may also qualify for a corporation tax deduction for the difference between the price paid by the employee for their shares and the market value.
The scheme of first choice, provided the company qualifies, is currently the EMI share option scheme as it allows the employee or director to hold options up to £250,000 of the employing company’s shares based on the market value when the option was granted. The shares, once acquired, potentially qualify for CGT business asset disposal relief when sold, and thus the first £1 million of gains would be taxed at just 10%.
The acquisition of shares and securities in connection with employment, other than through one of the four schemes outlined above, are commonly referred to as ‘unapproved’ or ‘taxed’ schemes. This means that neither the employee nor the employer benefit from any income tax or NIC advantages. This could result in a significant income tax and NIC charge.
Please contact us if you would like to discuss introducing a share incentive scheme to help you attract and retain talented staff.