Set up employee share schemes

Taxed employee share schemes - taxed, phantom and long-term incentive share plans

If HM Revenue & Customs tax-advantaged (approved) schemes don't match your commercial objectives, there are alternative schemes, where gains are generally subject to income tax under PAYE, and National Insurance contributions (NICs). Any type of share or other financial securities can be used and you can impose whatever conditions you want to deliver your commercial objectives. This allows greater flexibility .

Corporation tax relief is available for the cost of providing shares - but not other securities - to employees under a taxed scheme, subject to certain restrictions.

Taxed share option plan

This is similar to a tax-advantaged share option plan such as Company Share Option Plan (CSOP) or Enterprise Management Incentive (EMI) - see the page in this guide on  HM Revenue & Customs-approved schemes: CSOP and EMI  - but there are no limits on the amount or value of options given. In very limited circumstances where the shares aren't readily saleable, no NICs are due.

Phantom share option plan

Phantom option plans are cash bonus plans. The bonus is determined by the increase in value of a specified number of shares covered by the option. It's usually the difference between the market value of the shares when the scheme matures and their value at the outset. The bonus is subject to income tax and NICs. No shares are transferred or issued.

The business gets corporation tax relief on payments made under the plan.

Long-term incentive plan

These are used to encourage employees to build a shareholding in the company. They are given free shares that are held in a trust until specified conditions are met. When employees get the shares, they're subject to income tax and NICs, even though they may then be held in trust for a period of time. If employees risk losing shares because certain conditions aren't met, then income tax and NICs may be deferred until these conditions are removed or met.

Alternatively shares may be awarded to employees if they meet certain performance criteria. Income tax and NICs arise on the value of the shares when they are actually acquired by the employee.

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

 

 Print This Page

Source - Business Link; Crown Copyright.