Taxation on Employee Share Schemes

Employee share schemes, also known as employee share plans, are an incentive offered by some employers to reward and motivate key employees. Shares can simply be gifted directly by the employer or alternatively awarded via a form of shares scheme set up by the employer. The tax position of shares transferred to employees is not straightforward and professional advice should always be obtained.

In general terms, if shares are acquired via an approved HM Revenue & Customs scheme, and all associated conditions are met, it is likely there would not be any liabilty to income tax or National Insurance on the shares being transferred to employees. There are mainly four HMRC “approved” or “tax-advantaged” schemes. Employers may well call their own schemes by different names, but the underlying conditions will be the same.

• Company Share Option Plan (CSOP)
• Enterprise Management Incentives (EMI)
• Share Incentive Plan (SIP)
• Save As You Earn (SAYE or Sharesave)

All other share schemes are classified as “unapproved” or “taxed schemes”, whereby neither employee nor employer benefit from income tax and National Insurance advantages. The key issue with shares acquired directly via an unapproved scheme is identifying when and how the monetary value of shares acquired is taxed and subject to NIC. Direct transfers of shares outwith any form of scheme are also likely to carry an income tax/NIC charge.

The key issues of shares schemes are that:

• Different schemes can be used to either reward all employees or certain key employees.
• There is usually no income tax or National Insurance arising on the award of approved shares/options.
• If the conditions are met, there will be no income tax or National Insurance due on exercise of approved options.
• With some schemes, there may be no income tax or National Insurance on the sale of shares.
• Unapproved schemes, which do not have the tax and National Insurance advantages, can still serve a purpose in motivating employees.

More Information

For further advice do not hesitate to contact:

Sheena Anderson This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Lynn Gracie This e-mail address is being protected from spambots. You need JavaScript enabled to view it