Share schemes
Shares in some form – along with trusts – are the typical 'currency' of employee ownership. This is because to acquire the company, employees have to end up with at least a majority of the share capital.
Employees can acquire the company in one of the following ways:
- Employees buy shares with their own money, at market value or at a discount
- Employees are given shares free of charge
- Employees are given share options – a chance to acquire shares at a future date, but set at today's value, so that if the value of the shares goes up, the employee makes a money gain
- A trust, acting on behalf of all employees, acquires company shares and retains a portion of them either indefinitely or pending distribution to staff – known as indirect ownership
In all of these situations there are Inland Revenue tax advantaged share schemes which make it easier for employees to acquire and own the company's shares.
The key tax advantaged schemes are:
Share Incentive Plan
- employees who buy shares in their company through an HM Revenue & Customs approved SIP get relief against income tax and National Insurance [NI] on the amount they invest.
- The SIP also lets employees who are given shares get them free of income tax and NI
- SIP tax benefits are only available to employees if the shares are held - normally for 5 years in a SIP trust, which is a kind of warehouse for employee shares that allocates voting rights and any dividends and holds shares on behalf of employees.
SAYE or sharesave options
A popular way for companies to put ownership of shares in employees’ hands
via options because:
- SAYE options are linked to a special savings account with a bank or building society which provides tax free interest.
- The company can discount the price at which employees eventually buy the shares - increasing their potential financial gain.
- Download SAYE or sharesave option [ pdf ]
Company Share Option Plan [CSOP] options
Designed for companies who want to grant share options to selected senior
staff - but CSOP can equally be used to grant options to all employees in
the company. A CSOP may be used if a company or certain employees do not
qualify for Enterprise Management Incentive scheme options [see below].
Enterprise Management Incentive [EMI] options
Designed for smaller companies
trying to attract or retain key staff - but EMI options can be granted
to all employees provided the scheme's various rules are followed.