People are a key resource for any business and retaining skilled staff and rewarding long-term loyalty are top priorities for many companies.

An ever popular option for many privately-owned firms who want to motivate and retain staff is to introduce an employee share incentive scheme. Recent research shows that companies with some element of employee ownership do have a better level of employee engagement and are more resilient when times are tough. There is also evidence that such companies outperform their peers.

Perhaps one of the best known schemes currently available is the HMRC approved Enterprise Management Incentives (EMI) share option scheme. This allows employees to have the option to acquire shares at somepoint in the future, at a fixed price agreed with HMRC at the outset of the scheme, with the options being exerciseable on a future event such as an 'exit', or when certain conditions agreed in the option contract are satisfied.

Key advantages include the fact that no money is required to buy shares up front, any growth in value should be taxed at capital rates in the hands of the employee and may qualify for Entrepreneurs Relief (currently at 10%), and the grant of the option within a wider package can allow a company to attract and retain key talent. 

Although EMI may be the most popular, there are other approved share schemes available to help you attract and retain talent including the Share Incentive Plan and Company Share Option Plan. There are also alternatives which are not HMRC approved including growth shares and unapproved options. 

Our team of tax specialists have many years’ experience of introducing share schemes to companies and will advise you on the best option for your business. We advise across a number of areas from share scheme design, communication with employees around tax treatment, and managing option notification and annual reporting requirements with HMRC.  We also have significant experience in preparing and agreeing tax valuations with HMRC, and work closely with our legal intermediaries on share scheme implementations. 

From our initial meeting with Johnston Carmichael to discuss our aims, to preparing an acceptable valuation with HMRC, to closing out the project with the HMRC online reporting tool, I've been very impressed by the thorough and comprehensive service the JC entrepreneurial taxes team have provided.

Gordon Grant

CFO, DEM Solutions Ltd

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