Set up employee share schemes

HM Revenue & Customs-approved schemes: CSOP and EMI

These schemes are typically targeted at selected employees or workers with unique or scarce skills.

Company Share Option Plan (CSOP)

Employers can grant employees options on up to £30,000 worth of shares each. The share price, fixed on the day the option is granted, must not be lower than the share's market value on that day. The employee can exercise their options after a specified period. If they do so, it is at the fixed price, not at the market price.

If they sell the shares at a profit, no income tax or National Insurance Contributions (NICs) are due on the gains if certain conditions are met. Capital Gains Tax may be payable if gains exceed the annual allowance.

Your business can get corporation tax relief for the costs of establishing and administering the CSOP and for the cost of providing shares under the scheme. Before granting options, you must obtain HM Revenue & Customs approval.

Enterprise Management Incentives (EMI)

You can grant options worth up to £100,000 at the date of grant for each selected employee and up to £3 million for all employees. Eligible employees must work a minimum 25 hours a week or 75 per cent of their working time. You don't need HM Revenue & Customs approval but you must notify the Revenue within 92 days of granting the options. Corporation tax relief is available for the cost of providing the shares to employees.

Only independent trading companies or trading groups with less than £30 million in gross assets can grant EMI options and trading activities must be carried out mainly in the UK. Certain business sectors are excluded.

There is no income tax or NIC to pay when options are granted, nor when they are exercised if the option price is at least the market value of the shares when the options were granted. When employees dispose of their shares, Capital Gains Tax taper relief runs from the date the options were granted rather than the date of exercise.

Options must be exercised within ten years.

Subjects covered in this guide

• Introduction
• Defining share option and share award schemes
• Employee share ownership - for employers
• Employee share ownership - for employees
• Different schemes - an overview
• HM Revenue & Customs-approved schemes: CSOP and EMI
• HM Revenue & Customs-approved schemes: SIP and Save As You Earn
• Taxed employee share schemes - taxed, phantom and long-term incentive share plans
• Taxed employee share schemes - restricted, convertible and benefit trusts
• Choosing the best share scheme for your business
• Set up a share scheme
• Here's how I set up a successful employee share scheme

 

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