Business Finance: Peter Harrup on the changing regime for employee share incentive schemes

Peter Harrup of BDO

Peter Harrup of BDO - Credit: Archant

MOST company owners recognise that giving employees a direct financial stake in the business through a share scheme is an excellent way to reward, motivate and retain staff.

Of course, tax breaks for share schemes also help and there has been good news for both employees and employers recently.

Enterprise Management Incentive (EMI) share options are perhaps the most attractive share scheme for SME companies. Independent companies with gross assets of less than £30million and fewer than 250 employees can use the EMI and claim Corporation Tax relief.

Not only can the employer offer them to selected employees but options over shares worth up to £250,000 can be given to an employee free of Income Tax and National Insurance Contributions (NIC). Since April 6, 2013, specific Entrepreneurs’ Relief (ER) rules for EMI shares now make it much easier for employees to realise capital gains on selling EMI shares and be taxed at only 10% on their gains (rather than 28%).

The normal minimum 12 month holding period required for ER now includes the period the option is held and the requirement for the individual to hold 5% or more of the ordinary share capital in the company does not apply for EMI shares. So an EMI option held since April 6, 2012 can now be exercised and the shares sold immediately with any gain taxed at just 10% .


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At the other end of the spectrum, the Government is taking forward the idea of “employee shareholder” status. Following some political difficulties, it has set an implementation date of September 2013 for both the tax and employment law changes needed. Despite considerable criticism of the proposals, research carried out by BDO suggests that SME employers are interested in the proposals. Our modelling indicates that up to 10,000 companies would take advantage of these new contracts.

In outline, the proposed scheme involves employees acquiring newly issued shares with a value of between £2,000 and £50,000 in exchange for relinquishing certain employment rights. For employees, there will be Income Tax and NIC relief of £2,000 in respect of such shares and a complete exemption from Capital Gains Tax for all such shares when they are sold.

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If your company could benefit from using a share scheme there are, of course, other tax advantaged schemes to consider as well and the Government is making them easier to implement. With expert help, choosing the right scheme for your company and employees could be the best way to help it grow.

: : Peter Harrup is a partner at the Ipswich office of BDO.

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