Employee Share Schemes

Employee share schemes were traditionally limited to listed companies. However, over the last decade, tax and other developments have made these arrangements far more accessible to private companies as well.

Companies want to implement employee share schemes for a number of reasons. While each company is different, most wish to give employees some share in the growth in value of a company. This brochure sets out some common arrangements, most of which can be tailored to a company’s individual needs.

Tax is never far from being an issue here and relevant points are dealt with throughout as well as summarised at the end of this brochure. Broadly, capital gains treatment leads to gains being taxed at no more than 28% (but they can be taxed at 18%, 10% or possibly not be taxed at all). This is in contrast to income tax treatment at rates of up to 45% with National Insurance contributions payable on top. This brochure therefore focuses on those arrangements which offer capital gains tax opportunities.

Despite the tax benefits on offer, some companies may be deterred from putting in place an employee share scheme by perceived difficulties such as continued control of the company and dilution, dealing with leavers, limiting the value to be shared with employees and lack of an available market to convert private company shares into cash. This brochure discusses some possible solutions here.