In the increasingly competitive jobs market, it is important that employers are able to attract and retain talented people to help them grow their business. Within certain sectors, the opportunity to participate in the equity of the organisation that they work for is something that more employees are seeking and those employers that do not offer such opportunities could put themselves at a disadvantage when looking to retain and recruit.
For corporate employers, there are currently four HMRC ‘tax-advantaged’ schemes that provide employees and employers with income tax and National Insurance Contribution (NIC) advantages. The four tax-advantaged schemes are currently:
- Share Incentive Plan (SIP) and Save As You Earn (SAYE or Sharesave) schemes, which generally need to be made available to all employees after a qualifying period.
- Probably more appropriate 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 the management to award options to selected employees and directors that the organisation is looking to incentivise.
Shares acquired under these four schemes are generally free from income tax and NICs if correctly
structured. 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 employer 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 Capital Gains Tax business asset disposal relief when sold and thus the first £1million of gains would be taxed at just 10%.
The acquisition of shares and securities in connection with an 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.
