A short guide to company share schemes
There are at least nine schemes that can be used to award shares or share options to employees (or to consultants, non-exec directors etc). Some of them, such as the EMI share option scheme, come with substantial tax benefits for employees and the company. Certain schemes can be targeted at selected staff (e.g. key managers) while others have to be offered to all staff.
Note - this guide is available as a download here
When choosing the right scheme for your company, start by asking yourself what the principal aims are for setting up a scheme. You can always set up more than one scheme if you want different levels of incentive for some employees, such as your ‘key’ managers. See Step 1 for some of the initial questions to consider. Step 2 shows what schemes can be used under the various eligibilities.
| Initial questions | |
| Shares or options upfront? | 1.Do you want employees to have shares immediately or to be granted options to buy shares? |
| For all staff or just a few? | 2.Will the shares or options be for all employees or just aimed at certain key individuals? |
| Are you an SME with under 250 people? | 3.Is the company independent (i.e. not a subsidiary) with fewer than 250 employees? |
| Are any of the shares or options for non-employees? | 4.Some schemes are not available if the beneficiary is not an employee – e.g. are they a non-exec director, consultant or even another company? |
Based on the above criteria, you can select the schemes that may be suitable in the table below. Hint - if the company has fewer than 250 people and is independent, then we can state that an EMI option scheme will normally be the most beneficial plan overall for both the employees and the company.
| Scheme (see guide in next table) | Shares upfront | Options upfront | Must be offered to all staff | Selected staff can participate | Company must be independent | Must be fewer than 250 employees | Tax advantaged by legislation? | Can be used for non-employees | Flexibility *lower ***higher | Complexity and cost £ lower £££ higher |
| EMI | + | + | + | + | + | | *** | £ | ||
| CSOP | + | + | + | + | + | ** | ££ | |||
| SIP | + | + | + | + | ** | ££ | ||||
| SAYE | + | + | + | ** | ££ | |||||
| JSOP | + | + | ** | £££ | ||||||
| ‘Growth shares’ | + | + | ** | ££ | ||||||
| Unapproved plan | + | + | + | *** | £ | |||||
| ESS | + | + | + | ** | £££ | |||||
| EOT | + | + | + | * | £££ |
The table below translates the scheme abbreviations and summarises the main benefits and disadvantages of each.
| Scheme | Full name | Summary |
| EMI | Enterprise Management Incentive scheme | + flexible vesting structure, no income tax or NI, profit on sale of shares only taxed at 10% CGT, no minimum vesting period, £250k limit on share value - not for larger companies > 250 staff, some business sectors are ineligible, some HMRC reporting |
| CSOP | Company Share Ownership Plan | + usually no income tax or NI, profit on sale of shares taxed under CGT, could be used if not EMI eligible - minimum 3 year vesting period, £30k limit on share value, some HMRC reporting, CGT paid is at normal rates of 18%/28% |
| SIP | Share Incentive Plan | + usually no income tax, NI, or CGT - some businesses are ineligible, low limit on share value, some HMRC reporting, potential risk because employees are buying shares |
| SAYE | Save As You Earn | + company can sell discounted shares under option, usually no income tax or NI, profit on sale of shares taxed under CGT - some businesses are ineligible, minimum 3 years saving period to get tax benefits, low limit on share value |
| JSOP | Joint Share Ownership Plan | + usually no income tax or NI, profit on sale of shares taxed under CGT, flexible - not tax advantaged under legislation, needs an employee trust set up |
| ‘Growth shares’ | Growth Shares | + usually no income tax or NI, profit on sale of shares taxed under CGT, flexible, can give options or shares - potential risk in buying shares but tends to be low, requires a new share class |
| Unapproved plan | ‘Unapproved’ or non-tax- advantaged options | + very flexible - no specific tax advantages |
| ESS | Employee Shareholder Status (‘shares for rights’) | + no income tax or NI on first £2k of value, no tax on profit on sale of shares originally worth up to £50k - employees have to give up some employment rights, potential risk because employees are buying shares |
| EOT | Employee Ownership Trust | + A trust holds the shares on behalf of all employees, having purchased them from the previous owner; the latter pays no CGT on disposal - needs an employee trust set up, shares not obtained by employees personally |
Please contact us for further details on any of the schemes that may look of interest.
If you believe that an EMI scheme is the most appropriate there is a lot of detailed information available on our website, including videos.
01392-432654
© The Mill Consultancy 2016