Set up employee share schemes

HM Revenue & Customs-approved schemes: SIP and Save As You Earn

These schemes are designed for all employees . However, you may set an eligibility period relating to how long an employee has worked for your business, up to a maximum of 18 months' service.

Share Incentive Plans (SIP)

This is the most tax efficient scheme but it must be open to all eligible employees. There are three main types of plan:

• Employers can give staff up to £3,000 worth of free shares a year.
• Each year, employees can buy a further £1,500 worth of partnership shares from their gross salary, or up to 10 per cent of gross salary, whichever is less.
• Employers can give up to two matching shares for every share the employee buys.

All shares are held in a trust. Share dividends can also be held in the trust. Dividends worth up to £1,500 in any given tax year can be invested in new shares, provided these are held for a minimum of three years.

No income tax or National Insurance contributions (NICs) are payable if the shares are held in the SIP for five years. Shares held for over five years in the trust are free of Capital Gains Tax.

If employees leave the business before shares have been held in the SIP for five years, they:

• must repay income tax and NICs
• may have to forfeit free shares

Employers get corporation tax relief for establishing, contributing to and administrating the SIP.

Save As You Earn (SAYE or Sharesave)

This scheme allows employees to save between £5 and £250 per month for three, five or seven years. Employees get a tax-free bonus if they complete the savings plan.

Employers grant employees an option. At the end of the period, employees choose either to:

• use the money saved, plus the bonus and interest, to buy shares in your business
• have their contributions returned

Neither the bonus nor any gains made on the shares are subject to income tax or NICs. Capital Gains Tax may be payable on sale. It's

Employers have different terms and conditions for their schemes. However, you must offer every eligible employee the chance to participate.

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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