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Share Schemes

Share schemes are a really useful way for a business to engage and retain employees, and to therefore improve productivity. It is a very effective way of making employees stakeholders in the business.

Share schemes may be included in contracts of employment for senior executives and directors of a business, helping them to feel more invested in the business, its objectives and overall  performance. This sense of ownership increases their engagement and tends to make individuals think of the longer-term performance of the business, rather than the day-to-day shorter-term focus. Businesses may also enjoy the benefits of share schemes as they can be, with the correct structure and permissions, highly tax efficient.


Types of Share Schemes

Share schemes are slightly different to share options. Share schemes allow for employees to take ownership of the business straight away whereas share options can only be bought at a later date at a pre-approved price and on pre-agreed trigger events. For more information on share options, click here.

Ordinary and more traditional shareholdings are typically held by investors and owners of a business. They can be bought by, or given to, any individual at any time.

Growth shares are ordinary shareholdings, but often come with a premium based on expected business growth and excluding the value in the shareholding already accrued at the time they are acquired. Growth shares are most beneficial when hiring senior executives with the aim to stimulate business performance and growth, but avoiding giving away value already acquired.

Businesses can have multiple share schemes running simultaneously, giving employees different levels of investment, control and income that they will benefit from.

What is the Cost of Share Schemes?

Share schemes can be very tax efficient but are subject to Capital Gains Tax (CGT). Individuals will have to pay tax on the gains they receive. However, the tax rate is much lower than what is normally paid on annual salary.

If a business is interested in introducing share schemes, we strongly advise that you seek advice from employment specialists in order to ensure that you introduce them effectively and in tandem with the overall objectives of the business. In so doing, we would always work with your financial advisers in order to ensure that the schemes are compliant, that the necessary HMRC permissions are secured and that these are always tax efficient for both the business and employees.

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