New Forest

16/08/2022

Attracting and retaining key staff with shares 

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. How can they do this?

Share options

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.

Similarly, in sectors where employees are rarely given equity, if your business is able to offer this, it can make you far more competitive in the market at both attracting and retaining good staff.

For corporate employers, there are currently four HMRC ‘tax-advantaged’ schemes:

  • Share Incentive Plan (SIP)
  • Save As You Earn (SAYE or Sharesave) schemes
  • Company Share Option Plan (CSOP)
  • Enterprise Management Incentives (EMI)

Both SIPs and SAYE schemes generally need to be made available to all employees after a qualifying period. CSOP and EMI don’t and are therefore more flexible. With these schemes it is at management discretion which employees should (or should not) be awarded options.

With all the schemes there are numerous qualifying conditions to be met and therefore there is no ‘one size fits all’ solution. In most instances however, EMI tends to be the most practical and therefore the most popular option.

Why chose a ‘tax-advantaged’ scheme?

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 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. These are generally not so tax efficient, as can be seen in the table below:

EMI share optionUnapproved share option
When the option is grantedNo tax or NIC consequencesNo tax or NIC consequences
When the option is exercisedNo tax or NIC consequences for the employee, provided they pay full market value (at the date of grant) for the sharesNo tax or NIC consequences for the employee, provided they pay full market value (at the date of exercise) for the shares
The companyA Corporation Tax deduction can be claimed for the difference between the price paid by the employee and the value of the shares at exerciseNo Corporation Tax deduction available
On saleProvided the options (any number of) were held for at least 2 years, the gains (up to £1m) could potentially qualify for 10% Capital Gains Tax under Business Asset Disposal Relief (BADR)BADR only available if at least 5% of the shares are held by that employee throughout the 2 year period before sale. If not, gains taxed at 20% (unless within the basic rate band)

If you think a share incentive scheme could help your business attract and retain talented staff, please do contact Gemma Hedges 023 8046 1259 to discuss this in more detail.

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