Giving free or subsidised shares to your employees is normally a taxable benefit that must be reported on P11Ds. However, if you use one of the Revenue approved schemes, you can reduce or even eliminate completely both the tax bill for your employees and your own Class 1A NI contributions. For most employers, it is well worth the time and trouble of using an approved scheme. Your choice of scheme will depend upon the type and size of the employer company and the overall objectives of the scheme.
If your objective is to motivate your employees generally and give everyone a chance to hold a stake in the company, you would probably go for a Share Investment Plan. This enables you to give all qualifying employees shares worth up to £3,000 each per year and also give them 2 free shares for each extra share they buy worth up to £1,500 per year. It is possible to link the award of free shares to performance measures or specify a minimum length of service for qualification provided these rules are the same for all employees. All qualifying employees must be able to participate in the SIP for it to be approved by the Revenue.
If your objective was to recruit or retain key employees, you would probably be better off giving them Enterprise Management Incentives. These are share options allowing employees to participate in a future sale or flotation of the company. You can pick and choose who you offer these to; they do not have to be offered to all employees generally. For an EMI scheme to be approved by the Revenue there are several conditions that must be satisfied by the company, the employees and the scheme itself. For example, no employee can be granted EMI options worth more than £250,000 and the scheme must not grant options worth more than £3 million in total.
Listed companies would be more likely to grant their top executives benefits under a Company Share Option Plan as they would probably be too large to qualify for an EMI scheme. However, these are limited to £30,000 per employee.
Save As You Earn schemes are popular ways of saving to buy shares in an employer company. The employee is allowed to invest up to £250 per month for a fixed period of three, five or seven years. A bonus is payable at the end of the term and the proceeds can be used to buy shares at an agreed price which may be up to 20% less than market value.
At Acumen, we can help you to design your staff share scheme, draft the scheme rules and agree share valuations with the Revenue. We can also administer the scheme on your behalf and act as trustee. Please give us a call if you would like any help or advice in connection with a staff share scheme.
The following information sheets will tell you more about the various schemes: