Set up employee share schemes

Defining share option and share award schemes

Share option schemes are typically used as an incentive for employees.

A share option is the right to buy a certain number of shares at a fixed price, some time in the future, within a company.

Employees can generally exercise their options - buy the shares - after a specified period, known as the vesting period . You can make the granting and exercising of options dependent on reaching certain targets, such as sales targets.

When an employee exercises their options, it's at the price fixed at the date of grant, ie when they were given to the employee, regardless of the prevailing market price. They can then keep the shares or, if the market price is higher, sell them at a profit.

Share award schemes involve giving employees actual shares rather than options, free or for less than their market value. The value of shares given to employees is treated as employment income - subject to tax and National Insurance contributions, unless you opt for an HM Revenue & Customs tax-advantaged (approved) plan which comes with restrictions and requirements.

Share purchase schemes allow employees to:

• buy shares
• save money to buy shares
• buy shares for a small deposit, paying the rest at a later date

When deciding to offer shares, you can choose from a variety of different types, which have different rights. See our guide on shares and shareholders .

An employee share scheme can help a company's owners to transfer ownership to those working in the business, eg to family or to enable a management buy-out. You can sell your company gradually and obtain tax relief while doing this. The tax relief available depends on the share scheme, eg deferred capital gains tax on the sale of shares through an HM Revenue & Customs approved Share Incentive Plan.

Read about how share schemes can let you transfer ownership of a business on the ifsProShare website .

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

Warning: main(http://www.encorepersonnel.co.uk/inc/php/page_functions.php) [function.main]: failed to open stream: Connection refused in /home/sites/encorepersonnel.co.uk/public_html/hrportal/motivation/share-schemes/define.php on line 218

Warning: main(http://www.encorepersonnel.co.uk/inc/php/page_functions.php) [function.main]: failed to open stream: Connection refused in /home/sites/encorepersonnel.co.uk/public_html/hrportal/motivation/share-schemes/define.php on line 218

Warning: main() [function.include]: Failed opening 'http://www.encorepersonnel.co.uk/inc/php/page_functions.php' for inclusion (include_path='.:/usr/share/pear') in /home/sites/encorepersonnel.co.uk/public_html/hrportal/motivation/share-schemes/define.php on line 218