{"id":2388,"date":"2022-03-01T06:26:00","date_gmt":"2022-03-01T06:26:00","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=2388"},"modified":"2025-07-02T00:41:46","modified_gmt":"2025-07-01T23:41:46","slug":"using-employee-share-scheme","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/using-employee-share-scheme\/","title":{"rendered":"Key Considerations When Using Employee Share Schemes"},"content":{"rendered":"\n<p><span data-preserver-spaces=\"true\">If you own a company that employs others, you generally want to motivate your employees to perform at their best. In addition to a competitive salary, employee share schemes are an effective way to incentivise your employees&#8217; performance. This article <\/span>helps you<span data-preserver-spaces=\"true\"> determine if you<\/span>r company <span data-preserver-spaces=\"true\">should create an employee share scheme.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Overview&nbsp;<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Employee share schemes (ESSs) effectively incentivise employees because they align the company&#8217;s interests with theirs. E<\/span>ffectively,<span data-preserver-spaces=\"true\"> if you give employees shares in the company, they become part-owners and c<\/span>an<span data-preserver-spaces=\"true\"> share in its profits.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--idea\">\n<p><span data-preserver-spaces=\"true\">ESSs are common for directors and other senior leaders because it encourages them to act in the interests of shareholders, which typically aims to maximise the company&#8217;s profits.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<p><span data-preserver-spaces=\"true\">Most ESSs operate by giving employees the option to acquire shares. Furthermore, depending on the scheme, the employee may pay nothing or purchase the shares at a guaranteed minimum price. Because the employee has the option to purchase shares, these are k<\/span>nown<span data-preserver-spaces=\"true\"> a<\/span>s<span data-preserver-spaces=\"true\"> &#8220;options shares&#8221;.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">There are two main types of ESS:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">tax-advantaged share schemes (TASS); and&nbsp;<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">non-tax-advantaged shares schemes (NTASS).&nbsp;<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Tax-Advantaged Schemes<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">T<\/span>he government recognises certain <span data-preserver-spaces=\"true\">E<\/span>SSs that limit the tax your company and its employees must pay.<\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">There are four main types of schemes.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Company Share Option Plans (CSOPs)<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">This ESS enables companies to grant option shares to their employees. A<\/span>dditionally<span data-preserver-spaces=\"true\">, if the employee exercises their options rights, they will not have to pay income tax or any National Insurance contributions.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Consequently, if certain conditions are met, your company can grant up to \u00a330,000 in options (assessed at market value).&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">However, to implement a CSOP, your company must be listed on a recognised stock exchange or be free from the control of another company.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span data-preserver-spaces=\"true\">Your company can choose which employees it wishes to benefit from the scheme. Therefore, you do not have to offer the scheme to all your employees.<\/span><\/p>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">SAYE (Save As You Earn) Options Plans&nbsp;<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">SAYE schemes allow employees to save p<\/span>art<span data-preserver-spaces=\"true\"> of their earnings and apply them to purchase shares.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Such schemes will have two elements:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">a savings arrangement; and&nbsp;<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">a share option.&nbsp;<\/span><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">To enrol, employees must enter into an HMRC-certified savings arrangement and save between \u00a35 and \u00a3500 per month for three to five years. The savings usually come from post-tax earnings.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Enterprise Management Incentives Options&nbsp;<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">Commonly called <a href=\"https:\/\/legalvision.co.uk\/corporations\/emi-schemes\/\">EMI<\/a> options, these are only available to independent companies (i.e., not owned by another company) with less than \u00a330m assets under management and 250 employees.\u00a0<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">If met, there are other conditions beyond thi<\/span>s article&#8217;s scope<span data-preserver-spaces=\"true\"> that enable eligible employees to exercise the option.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Share Incentive Plans&nbsp;<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">SIPs permit eligible employees to acquire shares that are held in a particular type of trust.\u00a0<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">While these shares are <\/span>held in the trust<span data-preserver-spaces=\"true\">, usually<\/span> for<span data-preserver-spaces=\"true\"> three to five years, the<\/span>y do no<span data-preserver-spaces=\"true\">t accrue any income or <a href=\"https:\/\/legalvision.co.uk\/corporations\/capital-gains-tax\/\">capital gains tax<\/a>.\u00a0<\/span><\/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\" 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For instance, long-term incentive plans and deferred bonus schemes are examples of NTASS l<\/span>isted companies <span data-preserver-spaces=\"true\">commonly use.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">There are also employee benefit trusts (EBTs) similar to SIPs but without the tax benefit.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Key Considerations When Establishing an ESS<\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">PAYE<\/span> (Pay As You Earn)<\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">PAYE refers to employers&#8217; obligation with HMRC to deduct income tax and National Insurance credits from their employees&#8217; gross income. This obligation is independent of any contract between the employer and employee. <\/span><\/p>\n\n\n\n<div class=\"box box--warning box--icon\">\n<p><span data-preserver-spaces=\"true\">Therefore, when considering which ESS to implement, you must ensure that you properly account for your PAYE obligations. This is vital if any scheme can be considered taxable income, which your company would have to account to HMRC for PAYE purposes.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Exit-only ESSs<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">The market for a private company&#8217;s shares<\/span> can be small<span data-preserver-spaces=\"true\"> or non-existent. This can make the ESSs for private companies less attractive because the employees cannot simply sell their shares as if they held public shares.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Therefore, many ESSs implemented for private companies operate with the caveat that employees only become shareholders after the company has been sold. Y<\/span>ou may know of this as exit-only ESSs<span data-preserver-spaces=\"true\">. If the business is sold, employees may r<\/span>eceive a<span data-preserver-spaces=\"true\"> portion of the proceeds from the sale.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Understanding Shareholder Rights<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">If your employees exercise any option to acquire shares in your company, they will effectively be part-owners of the company. Therefore, you should be mindful that they will gain <a href=\"https:\/\/legalvision.co.uk\/startups\/legal-implications-equity-incentives\/\">additional shareholder rights<\/a> in your company.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span data-preserver-spaces=\"true\">Most importantly, if you issue them ordinary shares, they will receive voting rights equivalent to the portion of shares they hold. If the portion of shares held by your employees exceeds 25% of the total, your employees could defeat any special resolutions put in front of the company&#8217;s other shareholders.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<p><span data-preserver-spaces=\"true\">You can minimise this by either not issuing more than 25% of new shares to employees or by only issuing shares without voting rights.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Other items you should consider:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">restrictions on the right of employees to transfer their shares to others;&nbsp;<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">any impact of an ESS on existing shareholder agreements; and<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">how you will finance the new shares.<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Key Takeaways&nbsp;<\/span><\/h2>\n\n\n\n<p>E<span data-preserver-spaces=\"true\">mployee share schemes are great ways to incentivise the performance of your employees. If employees c<\/span>an <span data-preserver-spaces=\"true\">share in the company&#8217;s profits, they w<\/span>ill<span data-preserver-spaces=\"true\"> maximise their performance. There are many different types of ESSs, some of which do not impose tax obligations on the employee or company. Furthermore, you should factor in additional considerations before implementing an ESS, such as limiting certain rights employee shareholders might have, like voting.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">For more information on employee share schemes, our&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/legalvision.co.uk\/corporate-lawyers-lp\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">experienced corporate lawyers<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;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 at <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/legalvision.co.uk\/membership\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">membership page<\/span><\/a><span data-preserver-spaces=\"true\">.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Frequently Asked Questions&nbsp;<\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1646114952952\"><strong class=\"schema-faq-question\"><strong>What is an Employee Share Scheme?<\/strong><\/strong> <p class=\"schema-faq-answer\">An employee share scheme is a system that enables employees to acquire ownership in the company, usually through the exercise of options to acquire the shares. For example, you may issue free shares or give employees the option to buy them. There are several different schemes, each with its own tax implications and conditions your company will need to meet to be eligible to implement them.\u00a0<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1646114960002\"><strong class=\"schema-faq-question\"><strong>What are the disadvantages of an Employee Share Scheme?\u00a0<\/strong><\/strong> <p class=\"schema-faq-answer\">There may be specific tax implications, especially for your employees, that makes them unfavourable unless you can structure the scheme in a particular way. You will want to consider how to finance the shares: for instance, will you issue them at nominal cost, or will you require your employees to pay some amount? Likewise, will your employees&#8217; shares have voting rights attached to them?<\/p> <\/div> <\/div>\n","protected":false},"excerpt":{"rendered":"<p>If you own a company that employs others, you generally want to motivate your employees to perform at their best. In addition to a competitive salary, employee share schemes are an effective way to incentivise your employees&#8217; performance. This article helps you determine if your company should create an employee share scheme.&nbsp; Overview&nbsp; Employee share<a href=\"https:\/\/legalvision.co.uk\/corporations\/using-employee-share-scheme\/\">Continue reading <span class=\"sr-only\">&#8220;Key Considerations When Using Employee Share Schemes&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13461,"featured_media":558,"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":"1027,1494,2268,1030,2326,2047","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[28],"tags":[21,176,592,593],"class_list":["post-2388","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporations","tag-medium-business","tag-corporate-transactions","tag-employee-share-scheme","tag-company-share-option-plan"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Using Employee Share Schemes | LegalVision UK<\/title>\n<meta name=\"description\" content=\"Are you thinking of creating an employee share scheme? 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Read on for a detailed explanation of employee share schemes.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/legalvision.co.uk\/corporations\/using-employee-share-scheme\/\" \/>\n<meta property=\"og:site_name\" content=\"LegalVision UK\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/LegalVision\" \/>\n<meta property=\"article:published_time\" content=\"2022-03-01T06:26:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-07-01T23:41:46+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2021\/11\/30230158\/brand-design-00052.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1600\" \/>\n\t<meta property=\"og:image:height\" content=\"1067\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Kieran Ram\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@LegalVision_law\" \/>\n<meta name=\"twitter:site\" content=\"@LegalVision_law\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Kieran Ram\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"6 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/legalvision.co.uk\/corporations\/using-employee-share-scheme\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/legalvision.co.uk\/corporations\/using-employee-share-scheme\/\"},\"author\":{\"name\":\"Kieran Ram\",\"@id\":\"https:\/\/legalvision.co.uk\/#\/schema\/person\/5a59ade89273f68f939c7cb8cc66e6f1\"},\"headline\":\"Key Considerations When Using Employee Share Schemes\",\"datePublished\":\"2022-03-01T06:26:00+00:00\",\"dateModified\":\"2025-07-01T23:41:46+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/legalvision.co.uk\/corporations\/using-employee-share-scheme\/\"},\"wordCount\":1153,\"image\":{\"@id\":\"https:\/\/legalvision.co.uk\/corporations\/using-employee-share-scheme\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2021\/11\/30230158\/brand-design-00052.jpg\",\"keywords\":[\"medium business\",\"corporate transactions\",\"employee share scheme\",\"company share option plan\"],\"articleSection\":[\"Corporate Articles\"],\"inLanguage\":\"en-GB\"},{\"@type\":[\"WebPage\",\"FAQPage\"],\"@id\":\"https:\/\/legalvision.co.uk\/corporations\/using-employee-share-scheme\/\",\"url\":\"https:\/\/legalvision.co.uk\/corporations\/using-employee-share-scheme\/\",\"name\":\"Using Employee Share Schemes | LegalVision UK\",\"isPartOf\":{\"@id\":\"https:\/\/legalvision.co.uk\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/legalvision.co.uk\/corporations\/using-employee-share-scheme\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/legalvision.co.uk\/corporations\/using-employee-share-scheme\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2021\/11\/30230158\/brand-design-00052.jpg\",\"datePublished\":\"2022-03-01T06:26:00+00:00\",\"dateModified\":\"2025-07-01T23:41:46+00:00\",\"author\":{\"@id\":\"https:\/\/legalvision.co.uk\/#\/schema\/person\/5a59ade89273f68f939c7cb8cc66e6f1\"},\"description\":\"Are you thinking of creating an employee share scheme? 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