As the economic downturn from COVID-19 becomes more apparent, shares may provide UK businesses looking to incentivise their employees with an alternative to salary. Employee share schemes can help struggling businesses to recruit, retain and motivate ‘key players’ without depleting cash resources to pay salaries and bonuses.
What is a share scheme?
An employee share scheme is a way of sharing company ownership with your employees. This means you are offering a % of the issued shares in your company as part of a share option scheme.
You can grant actual shares now or choose to issue options that can be exercised in a given time window.
Reasons for Setting Up Schemes
There are three main reasons why you should set up a share scheme:
- Offering shares or the option to buy shares is a popular way to attract highly skilled talent.
- Share schemes are an effective way of retaining employees in short to medium term.
- Share schemes boost productivity; employees who participate in a share scheme usually work harder.
Who can receive shares as part of a share scheme?
You can reward one or more employees with shares in your company. It is possible to give shares to non-employees, although careful consideration of scheme type is required.
Share schemes types
There are many share schemes available to UK businesses, and they offer different terms and conditions and potential tax savings for a company or/and employee.
In a nutshell, share schemes fall into two categories:
- Tax advantaged schemes (approved by HMRC), and
- Unapproved (Non-Tax advantageous).
Tax advantaged schemes generally enable companies to award shares to employees free of tax and National Insurance. One such example of an approved scheme is an Enterprise Management Incentive (EMI) scheme. Each option entitles the employee to buy shares in the company in the future, at a price agreed at the date of the grant. If the value of the shares increases between the option and exercise dates, the employee benefits.
If you wish to explore alternative ways to remunerate your employees, please get in touch with our Tax team.