A slice of the company pie
Offering shares to employees is not new; it’s something that many companies have done for a variety of reasons.
It’s excellent for employee engagement and commitment, to encourage employees to feel it’s their company and know that their efforts can make a difference to them financially.
It’s a good way to attract and retain key staff members, adding a dimension to their reward package that has the potential for significant long-term rewards.
It’s a strategy often used as part of succession planning, providing a reward for long-term members of staff who will be the future of the organisation. Whether it’s simply part of an ongoing way to retain talent or a means of finding the right successors in a family business, where there are no family members ready or willing to pick up the reins when the current owners retire.
However, employee share schemes need careful consideration before they’re launched. There are many tax implications to consider both for the organisation and also for the employees receiving the shares.
If shares are to be gifted to an employee for less than market value, the employee will incur a tax charge and national insurance charge on the difference between the value of the shares at issue and what was paid.
There are a number of HMRC approved schemes, that do have some tax advantages.
- Share Incentive Plans (SIPs): This give employees the option to save and buy shares. If they’re kept in the plan for 5 years, not Income Tax or National Insurance will be due on their value. However, there are other issues that should be considered.
- Save As You Earn (SAYE): Employees can enter a savings scheme and buy shares at a fixed price with their savings. There are tax advantages, but employees may have to pay Capital Gains Tax if you sell them unless they’re transferred in an ISA or a Pension scheme.
- Company Share Option Plans: Employees have the option to buy up to £60,000 worth of shares (after 6 April 2023). However, there are conditions that need to be considered.
- Enterprise Management Incentives (EMIs): This applies to companies that have assets of £30 million or less and have fewer than 250 full-time employees. There are tax advantages, providing the employee purchases the shares at market value.
None of these schemes covers gifting shares to employees or offering them at a discounted rate from current market value. That means that if you’re considering including shares in your employee’s packages, you’ll need to ensure that the offer is attractive enough that it won’t incur a tax bill for the employee. That can actually have a detrimental effect, rather than a positive one.
Plan ahead
Every business is different, and share offers should be tailored to your business and situation.
What do you want to get from the share scheme, your long term aim?
What kind of shares do you want to give? There are different categories of share and there are implications to each of these.
Have you discussed the scheme with your employees – what do they think? Will it be well-received or are they not interested?
You’ll need a clear set of criteria that addresses all the issues around share offers.
- At what point in their employment will people be offered shares?
- Will it be optional or a set part of the employment package?
- What happens when people leave the company?
- Is there a ceiling on how many shares you want to issue?
- How will the share scheme be launched to make it attractive to the staff?
These are just a few things to clarify. There are a number of steps that need to be taken and the tax implications must be carefully considered to ensure this great incentivising option does not incur unknown tax charges or is received positively by your employees.
If you have any questions about how you can get a slice of the company pie, then feel free to get in touch with our expert team today and we’ll be happy to help.
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