Employee share schemes: Attracting and retaining talent

24 February 2022

Employee share schemes: Attracting and retaining talent

Talented individuals are in high demand. Now more than ever before, businesses are facing significant challenges as they look to recruit and retain the right people. Whilst salary is the obvious pull for many, it is far from the only thing that drives people to move or stay. With the job market only becoming more competitive, businesses should look to other opportunities to retain, reward and incentivise key staff.

Employee share schemes are continuing to become a popular option with businesses looking to take a progressive approach to talent retention. They offer employees a stake in the business as a tax-effective way of boosting motivation. You can reward key employees, or your entire workforce. Ultimately, the business enjoys the rewards of engaged employees who are driven by the business growing and achieving more

Jonathan Scott, Tax Partner, considers the use of tax planning, particularly share incentive schemes, in attracting and keeping the key people needed to help drive growth in your Leeds-based business and also assist you in achieving your ultimate objectives.

Enterprise Management Incentives

Enterprise Management Incentives (EMIs) are a HMRC approved, tax-advantaged share option scheme. An EMI enables you to attract and retain the right people by rewarding them with equity participation in the business.

EMI options help to align the interests of the business owner with those of the employees, by setting appropriate conditions which need to be met before the EMI shares are granted. EMIs work in a tax-effective manner for both the employer and employee, which allows a significant business benefit. Holders of a qualifying EMI share are only subject to a 10% capital gains tax when they sell their shares.

The company will also gain a corporation tax deduction equal to the difference of the value when the EMI options were granted versus the value when exercised by the EMI holders. Should the company have grown significantly from the date the EMIs were granted, a large tax deduction could be available for the company.

There are a number of conditions for a company to qualify for EMI status, therefore getting the correct tax advice is essential. 

Company Share Option Plan

Although they’re not as commonly used as EMIs, Company Share Option Plans (CSOP) are also a HMRC approved, tax-advantaged discretionary share option plan under which a company may grant options to any employee or full-time director.

There are no limits on company size or number of employees unlike EMIs, so a CSOP can be used by larger companies. However, this does mean that a CSOP is more restrictive than an EMI.

Growth Shares

Growth shares are a great way to incentivise management teams or employees for company growth without triggering a tax charge for the employee or the business.

These share incentives effectively only accumulate value from a certain date when they are created, and only if the company grows or is valued greater than the date in which the growth shares were created.

Growth shares can be incredibly flexible and can be brought in for different employees at different times. There are also fewer requirements before implementing a growth share scheme due to the fact it does not require having to gain HMRC approval.

Employee Ownership Trust

An Employee Ownership Trust (EOT) is a special form of employee benefit trust introduced by the Government in 2014. The aim is to facilitate wider employee-ownership, via an indirect holding in the business.

The incentive for business owners is a very generous tax break to encourage shareholders to move to an employee-ownership model. However, in order to qualify for the tax incentives, employee ownership needs to be structured in a particular way.

Although the tax breaks are aimed at companies, there is no reason why those businesses that are held by a partnership couldn’t be incorporated, meaning that, when the time comes for an exit, the shareholders can sell their shares to an EOT.

We have seen a surge in companies moving to the EOT model in order to facilitate an exit for shareholders and to move into a more collaborative environment with the companies employees. 

For employees in a business owned by an EOT, a £3,600 tax-free bonus can be achieved per annum. Shareholders who have sold their shares to the EOT are able to realise their value at a tax rate of 0%.

Understanding the why

Over the last couple of years, there has been a real need for employers to recognise the importance of supporting their staff. These incentives enable business owners to motivate their employees to become more productive, align employee interests with the business, and recruit and retain valuable employees.

It’s not just businesses that benefit from employee share schemes. There is a huge range of benefits for employees that coincide with being given a stake in your workplace. It becomes much easier to save for retirement, build trust in management, and job security is greater. Ultimately, it gives your people another reason to stay.

With the right consultation and planning, you could achieve great things with employee share schemes. Talk to one of our advisors and find out the best way to incentivise your team and business.


Jonathan Scott

Tax Partner