{"id":183678,"date":"2023-11-01T03:12:34","date_gmt":"2023-11-01T03:12:34","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=183678"},"modified":"2025-03-12T01:25:46","modified_gmt":"2025-03-12T01:25:46","slug":"types-ess","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/types-ess\/","title":{"rendered":"What Are the Different Types of Employee Share Schemes in the UK?"},"content":{"rendered":"\n<p>As a startup, paying a premium for team members can be challenging if you have yet to raise plenty of capital. One solution is an employee share scheme. Using a share scheme allows you to <a href=\"https:\/\/legalvision.co.uk\/startups\/esop-offer\/\">offer your employees equity in your company<\/a>. Most high-growth startups will operate an employee share scheme, as offering team members equity in the company can help bridge the gap between a startup salary and an equivalent corporate salary. Employee share schemes are also a great way to ensure your employees feel like they have a real ownership stake in the business and that their interests align with those of the business. The startup\u2019s success will be their success.&nbsp;<\/p>\n\n\n\n<p>Most <a href=\"https:\/\/legalvision.co.uk\/corporations\/employee-share-scheme\/\">employee share schemes<\/a> in the UK operate by giving employees the option to acquire shares in the future rather than issuing shares directly. There are several different schemes, some of which have tax advantages. This article explores the main types of share schemes.&nbsp;<\/p>\n\n\n    <div class=\"my-7 lg:my-10 border-y-2 border-gray-100 py-7 lg:py-10 flex flex-col sm:flex-row items-start gap-10\">\n                    <img decoding=\"async\" class=\"w-52 mx-auto my-0! rounded\" src=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2022\/09\/06164254\/uk-startup-manual-290x410-1.jpg\" alt=\"Front page of publication\"\n                 loading=\"lazy\" width=\"208\" height=\"298\">\n                <section>\n            <div class=\"text-2xl font-bold\">UK Startup Manual<\/div>\n            <div class=\"body-text\">\n                <p>LegalVision&#8217;s Startup Manual is essential reading material for any startup founder looking to launch and grow a successful startup.<\/p>\n            <\/div>\n            \n\n<a href=\"https:\/\/go.legalvision.co.uk\/uk-startup-manual.html\" class=\" block px-5 py-3.5 max-w-fit bg-orange button__hover transition rounded text-white font-bold text-lg no-underline uppercase leading-tight text-center\" target=\"\" rel=\"\">Download Now<\/a>        <\/section>\n    <\/div>\n\n\n\n\n<h2 class=\"wp-block-heading\">Enterprise Management Incentive (EMI) Schemes<\/h2>\n\n\n\n<p>The most commonly used share scheme in the UK is the Enterprise Management Incentive (EMI) scheme.&nbsp;<\/p>\n\n\n\n<p>There are several criteria that the company must meet to qualify for the EMI scheme. If you have already established overseas and are looking to set up in the UK, you will need to satisfy the following:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>UK permanent establishment<\/strong> \u2013 This is typically a UK company, which could be a subsidiary of an overseas company. Occasionally, an overseas company will set up a \u2018permanent establishment\u2019 ( like a branch) in the UK to meet this criteria.&nbsp;<\/li>\n\n\n\n<li><strong>Independence test<\/strong> \u2013 The <a href=\"https:\/\/legalvision.co.uk\/business-structures\/holding-company\/\">holding company<\/a> issuing the options must not be majority-owned by another company, taking into account the shareholding of any individuals associated with the corporate shareholder. This is particularly relevant where the company issuing the options is located in a jurisdiction where trusts are used, as often the founder\u2019s shares may be held by a corporate trustee, which would fall foul of this rule if the founder has a majority shareholding.&nbsp;<\/li>\n\n\n\n<li><strong>Group-wide limits<\/strong> \u2013 You have fewer than 250 full-time employees and gross assets of less than \u00a330 million.<\/li>\n<\/ul>\n\n\n\n<p>In addition, the individual must satisfy tests before receiving EMI options. In particular they:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>must be a genuine employee;<\/li>\n\n\n\n<li>have devoted a certain number of hours to the business; and<\/li>\n\n\n\n<li>own (or would own after exercising their options) 30% or less of the company\u2019s shares.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">HMRC Approval<\/h3>\n\n\n\n<p>If your employee satisfies the above, they will not pay any income tax when exercising their options. This is provided the exercise price paid by the employee is at least equal to the market value at the date the option was granted. To ensure this is the case, you must obtain a valuation of the EMI shares and get this approved by HMRC. Once you have your valuation approved by HMRC, you have 90 days to issue options to employees using that valuation as the exercise price.&nbsp;<\/p>\n\n\n\n<p>To issue options to your employees, you will need a set of EMI Option Plan Rules setting out how the scheme operates. Likewise, enter into an Option Agreement with the employee. Once you issue an EMI option to an employee, you will need to notify HMRC, as well as complete an annual filing.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Company Share Option Plans (CSOPs)<\/h2>\n\n\n\n<p>Companies wanting to issue options under a CSOP must meet similar criteria to EMI schemes. However, the valuation to set the exercise price does not need approval by <a href=\"https:\/\/www.gov.uk\/government\/organisations\/hm-revenue-customs\">HMRC<\/a>. Accordingly, there is less certainty that the employee will not have to pay any income tax when exercising options as the exercise price has not been confirmed to be the same as the market value when granting the options.&nbsp;<\/p>\n\n\n\n<p>In addition, CSOPs have less flexibility regarding when employees can exercise their options. Further, employees must hold onto them for at least three years unless certain exceptions apply (for example, they are a \u2018good leaver\u2019).&nbsp;<\/p>\n\n\n\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        <span class=\"text-lg not-prose\">\n                            Call <a href=\"tel:+448081968584\" class=\"not-prose\">0808 196 8584<\/a> for urgent assistance.\n                <br>\n                Otherwise, complete this form, and we will contact you within one business day.\n                    <\/span>\n    <\/div>\n\n    \n\n<div class=\"not-prose flex justify-center 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The advantage of using this type of scheme is that the employee still gets favourable income tax treatment but can pay up to a 20% discount to the market value at the time of grant when exercising their options. However, you cannot only select key employees to issue with options. All employees with a certain length of service have the opportunity to participate in the scheme.&nbsp;<\/p>\n\n\n\n<p>SAYE options work by setting up a linked savings account that the employee contributes to from their salary. At the end of the savings period, they can either use the money saved to exercise their option and buy shares or withdraw their savings.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Share Incentive Plans (SIPs)<\/h2>\n\n\n\n<p>Sips are the only incentive scheme where employees receive shares rather than options. Your startup must offer the scheme to (nearly) all employees and allow:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>employees to buy a certain amount of shares; and<\/li>\n\n\n\n<li>the company to gift a certain amount of shares each tax year.&nbsp;<\/li>\n<\/ul>\n\n\n\n<div  class=\"box box--icon box--info\">\n    <p>Typically, these schemes are fairly complex. Further, the monetary limits on the amount of shares the employees can buy and the company can issue for free are low compared to the other schemes.<\/p>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\">Non-Tax Advantaged Share Schemes&nbsp;<\/h2>\n\n\n\n<p>If your company does not qualify for any of the above schemes, you are free to issue either options or shares to your employees. However, there may be income tax consequences in doing so.&nbsp;<\/p>\n\n\n\n<p>Importantly, there are many hoops a startup needs to jump through to qualify for a tax-advantaged employee incentive scheme. It is best practice to seek professional advice on which schemes your startup will qualify for and how to implement the most suitable one.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Key Takeaways<\/h2>\n\n\n\n<p>Motivating and compensating your employees can be challenging as a startup business when you have yet to raise sufficient capital. Employee share schemes are an effective way to offer your employees equity in your company and bridge the gap between a startup salary and an equivalent corporate salary. This is especially the case when you are bringing your startup to the UK and want to motivate existing employees to make the overseas expansion with you.<\/p>\n\n\n\n<p>There are several types of employee share schemes available, including:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Enterprise Management Incentive schemes;<\/li>\n\n\n\n<li>Company Share Option Plan;<\/li>\n\n\n\n<li>Save as You Earn Option Plans;<\/li>\n\n\n\n<li>Share Incentive Plans; and<\/li>\n\n\n\n<li>Non-Tax Advantaged Share Schemes.<\/li>\n<\/ul>\n\n\n\n<p>For more information on the different types of employee share schemes, our experienced <a href=\"https:\/\/legalvision.co.uk\/corporate-lawyers-lp\/\">corporate lawyers<\/a> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our <a href=\"https:\/\/legalvision.co.uk\/membership\">membership page<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Frequently Asked Questions <\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1741742420578\"><strong class=\"schema-faq-question\">What are the tax advantages of an Enterprise Management Incentive (EMI) scheme?<\/strong> <p class=\"schema-faq-answer\">The EMI scheme offers significant tax benefits for both employers and employees. If the scheme is structured correctly, employees will not pay income tax when exercising their options, provided the exercise price is at least equal to the market value of the shares at the time the options were granted. Additionally, employees may pay lower capital gains tax on the eventual sale of their shares.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1741742503572\"><strong class=\"schema-faq-question\">Who is eligible to participate in a Save As You Earn (SAYE) option plan?<\/strong> <p class=\"schema-faq-answer\">SAYE option plans are available to all employees who meet the company&#8217;s minimum service requirement. This type of scheme allows employees to save a portion of their salary in a linked savings account, and after the savings period ends, they can use the money to buy shares at a discounted rate or they can withdraw their savings.<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"9eb4f72322\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/183678\" \/>            <input value=\"https:\/\/legalvision.co.uk\/corporations\/types-ess\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"What Are the Different Types of Employee Share Schemes in the UK?\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>As a startup, paying a premium for team members can be challenging if you have yet to raise plenty of capital. One solution is an employee share scheme. Using a share scheme allows you to offer your employees equity in your company. Most high-growth startups will operate an employee share scheme, as offering team members<a href=\"https:\/\/legalvision.co.uk\/corporations\/types-ess\/\">Continue reading <span class=\"sr-only\">&#8220;What Are the Different Types of Employee Share Schemes in the UK?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13193,"featured_media":183583,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"177268,179776,2757,177815,1402,181664","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[28,31],"tags":[21,592,1534,1535,1536],"class_list":["post-183678","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporations","category-startups","tag-medium-business","tag-employee-share-scheme","tag-enterprise-management-incentive-scheme","tag-emi-scheme","tag-company-share-option-plans"],"acf":[],"yoast_head":"<!-- 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Lease"},{"@type":"BreadcrumbList","@id":"https:\/\/legalvision.co.uk\/corporations\/types-ess\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/legalvision.co.uk\/"},{"@type":"ListItem","position":2,"name":"Corporate Articles","item":"https:\/\/legalvision.co.uk\/category\/corporations\/"},{"@type":"ListItem","position":3,"name":"What Are the Different Types of Employee Share Schemes in the UK?"}]},{"@type":"WebSite","@id":"https:\/\/legalvision.co.uk\/#website","url":"https:\/\/legalvision.co.uk\/","name":"LegalVision UK","description":"LegalVision is a commercial law firm in the UK with a commitment to 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She began practising as a lawyer at a top London law firm before moving to Australia in 2018. Sarah specialises in advising startups, SMEs, corporate clients and investors on a variety of corporate matters from company incorporations and business structuring to complex cross-border business sales.","sameAs":["https:\/\/www.linkedin.com\/in\/sarah-aldersley-b9616968\/","anthony.lieu@legalvision.com.au"],"url":"https:\/\/legalvision.co.uk\/author\/sarah-aldersleylegalvision-com-au\/"},{"@type":"Question","@id":"https:\/\/legalvision.co.uk\/corporations\/types-ess\/#faq-question-1741742420578","name":"What are the tax advantages of an Enterprise Management Incentive (EMI) scheme?","acceptedAnswer":{"@type":"Answer","text":"The EMI scheme offers significant tax benefits for both employers and employees. If the scheme is structured correctly, employees will not pay income tax when exercising their options, provided the exercise price is at least equal to the market value of the shares at the time the options were granted. Additionally, employees may pay lower capital gains tax on the eventual sale of their shares.","inLanguage":"en-GB"},"inLanguage":"en-GB"},{"@type":"Question","@id":"https:\/\/legalvision.co.uk\/corporations\/types-ess\/#faq-question-1741742503572","name":"Who is eligible to participate in a Save As You Earn (SAYE) option plan?","acceptedAnswer":{"@type":"Answer","text":"SAYE option plans are available to all employees who meet the company's minimum service requirement. This type of scheme allows employees to save a portion of their salary in a linked savings account, and after the savings period ends, they can use the money to buy shares at a discounted rate or they can withdraw their savings.","inLanguage":"en-GB"},"inLanguage":"en-GB"}]}},"_links":{"self":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts\/183678","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/users\/13193"}],"replies":[{"embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/comments?post=183678"}],"version-history":[{"count":7,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts\/183678\/revisions"}],"predecessor-version":[{"id":192937,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts\/183678\/revisions\/192937"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/media\/183583"}],"wp:attachment":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/media?parent=183678"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/categories?post=183678"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/tags?post=183678"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}