If you are looking to incentivise employees and retain key individuals in the long term, an employee share schemes could be the answer.
Rickard Luckin’s upcoming
Share Schemes webinar
on 25 November will explore such incentive schemes and discuss some of the main pros and cons for each route, but if you’re unsure as to whether this might be a worthwhile consideration for your business, here is a brief overview of some of the ways you can reward employees.
1. Direct Share Awards
This approach would see certain employees acquire an immediate shareholding in the company. They would be taxed by reference to the current market value of the shares. This approach is the easiest to set up but can result in immediate tax liabilities for the employee.
2. Unapproved Share Options
This is essentially an option agreement giving an employee the right to acquire shares, which is sometimes subject to a specific future event, such as a company sale. Payment for the shares and tax liabilities are deferred until the options are exercised, at which point the employee is then assessed to income tax by reference to the market value at that time.
3. Enterprise Management Incentive (EMI) Share Options
This is a form of share option which is part of a HMRC approved scheme offering tax advantages for the employee and the employer. There are specific qualifying conditions which must be met, for example the company must be a trading company.
One benefit to an EMI scheme is the employer can pre-agree a value with HMRC, to give certainty on the tax treatment. Provided the employee pays at least the grant date market value for their shares when they exercise, they suffer no income tax.
4. Nil Paid Share Allotments
This is a variation on the direct award of shares which can also be combined with an option. The employee will agree to pay the market value of the shares, but will not physically pay that price at the point of issue. Instead it is left as owed to the company. In theory, this avoids an income tax liability for the employee, however there isn’t an opportunity to pre-agree a value with HMRC like there is with EMI options.
5. Growth Shares
This is a way of protecting all or some of the current value of the business by offering shares in its future equity. These shares can be offered with little to no starting value, so the employee doesn’t have to pay a meaningful sum for the acquisition. These shares protect the existing equity while enabling employees to avoid a financial outlay and income tax liabilities. However, these shares are less lucrative than normal shares.
Register for our webinar
For more information on all of the above schemes, join Hayley Sheppard and James Boustead on 25 November for our free-to-attend Share Schemes Webinar by clicking here .
Each of the above routes will be discussed in more detail, which we hope will help to narrow your focus towards one or two schemes that you believe would be most aligned with your company’s objectives. Rickard Luckin can then work with you to recommend the best strategy and help you implement this.
If you have any questions about the above, or would like more information specific to your circumstances, please enter your email address below and we will get in touch: