SMEs should be incentivising staff through an employee share scheme

shares business

Accountants are highlighting the benefits of awarding company shares to employees, as a way of incentivising the workforce and helping to secure businesses’ long term future.

The important role an employee share scheme can play in growing a business through the attraction and retention of key staff should be maximised.

Jacquelyn Kimber, Tax Partner at Newby Castleman, explains, “As well as often being more tax efficient than paying bonuses, giving shares to staff also instils employees with a sense of ownership and responsibility for the success of the business.

“Employee share plans come in all shapes and sizes, and their flexibility means that there will be an arrangement to suit most businesses, whether the owners are looking to give away an immediate share of equity, or decide on an option scheme which could be linked to performance, or a major event such as a company sale.”

From a tax viewpoint, there are a number of ‘tax advantaged’ share schemes which offer favourable tax treatment to participants. One of the most popular schemes for private companies, due to its flexibility and many tax benefits, has been the Enterprise Management Incentive (EMI) scheme.

EMI arrangements offer smaller businesses the opportunity of granting share options up to the value of £250,000 to each employee, usually without income tax charges arising. Any gain on the future sale of the option shares is taxed at the Entrepreneur’s Relief rate of 10%.

However, whilst EMI has been very popular with business, because it is targeted at smaller companies (ie those with less than 250 employees) it requires approval under EU State Aid rules.

Jacquelyn continued; “Approval expired on 6 April 2018, and the EU Commission is yet to confirm re-approval of the scheme, so we are advising companies to hold off granting EMI options for the time being so that employees aren’t left with any nasty surprises.

“Outside of the ‘approved’ schemes, there are numerous options for companies wishing to reward employees with shares, and bespoke arrangements can be designed around the particular needs of businesses.

“For example, a fast-growing young business is going to have different very objectives to a more mature business, where share incentives may be the first step in transferring ownership to the next generation. The good news is that there is a wealth of alternatives when it comes to share incentives, so with careful planning the right employee plan is out there.”

Jacquelyn concluded, “Managing share incentive schemes for employees can be a very complicated business, and any employers who feel confused by the various types of schemes available, or any other part of the financial process, should consider contacting us for professional advice.”

Newby Castleman is one of the Midlands’ leading independent accountancy firms, with offices in Leicester and Loughborough. It offers a range of specialist financial services, business and tax advice for individuals and businesses. For further information, telephone the Leicester office on 0116 254 9262, the Loughborough office on 01509 263500 or visit the website at