Employee Share Scheme

Under an employee share scheme (“ESS”), employers can give employees the right to buy or a right to receive a set number of shares in the company at a fixed price during a set period of time. Careful planning is essential however to meet stringent HMRC requirements and to navigate the associated tax rules.

There are broadly two categories of ESS available:

1. ‘Approved’ schemes

2. ‘Unapproved’ schemes

An approved employee share scheme can include Company Share Option Plans (“CSOPs”), Enterprise Management Incentives (“EMI”), Share Incentive Plans (“SIPs”) and Save As You Earn (“SAYE”). They are usually afforded some form of statutory relief that makes their acquisition by employees, and award by employers, quite efficient from a tax perspective.

Unapproved plans, such as Growth Share Plans, Long-Term Incentive Plans and Unapproved Share Option Schemes, are not approved by HMRC and as such do not offer the same types of statutory tax reliefs that are usually on offer for approved schemes. However, these schemes tend to afford a much greater flexibility to the employer and it is still possible to put together such a scheme that meets the employer’s objectives in a tax efficient manner.

Each type of employee share scheme is governed by different rules, eligibility and tax treatment, which means specialist advice is essential to ensure compliance while deriving maximum benefit for company and employee alike

An employee share scheme can be highly effective for an employer to attract and retain best talent, and in aligning employee and company interests.

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