Share options - what is left?

On 1 September 2013, the government introduced the Employee Shareholder Status as a way of employers incentivising employees with shares in the company.

In exchange for giving up some statutory rights, and provided certain conditions were met, the employee could receive shares in the company without any adverse income tax charges arising. When the shares were sold, then depending upon the initial value of the shares when the employee received them, the entire profit could be tax free.

However, this wasn’t as popular as the government intended. Additionally, the government felt that the Employee Shareholder Status was being abused and by entrepreneurs and not the average employee for whom it was intended. Because of this, from 1 December 2016 Employee Shareholder Status is no longer available as a tax mechanism for incentivising employees.

So, what is left? There are still a number of approved share options schemes available for the employer:

1. Enterprise Management Incentive (EMI)
2. Company Share Option Plan (CSOP)
3. Share Incentive Plan (SIP)
4. Save As You Earn (SAYE)

Each of the above options has tax advantages for both the individual and the company. Each share option scheme has its own set of rules and advantages, for example:

EMI bespoke option agreements can be put in place for different employees. The employee may only be able to exercise the options should certain targets be met or they can only be exercisable on a sale.

CSOP must be open to all employees and directors. The employee can obtain shares worth up to a maximum of £30,000 based upon a price agreed with HMRC in advance.

SIP provided the employee keeps any shares they receive within the SIP plan for a minimum of five years, no charge to income tax will arise. If the shares are sold whilst they are still in the SIP plan then no capital gains is due. There are four ways in which an employer can give an employee shares under the SIP plan: free shares, partnership shares, matching shares and dividend shares.

SAYE is a savings based share scheme. The employee can save up to £500 per month under the scheme and at the end of the term (usually three to five years), the employee can use the savings to buy the shares. Any interest or bonuses paid at the end of the contract are tax free.

As the name suggests these are approved share options agreements, therefore the company would need to obtain HMRC’s approval before putting any share option schemes into place. We can also assist you with this and prepare any valuation reports required as well as advising on which approved share option scheme is appropriate for your company and also upon the terms of the share options.

Please speak to Latha Rodgers or Tim Adcock for further information.

Registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales and authorised and regulated by the Financial Conduct Authority for investment business