Enterprise Management Incentive (EMI) Scheme Option permits employee to buy up to £250,000 worth of shares at a later date at a set price. Gains between option grant and exercise date are subject to CGT rather than income tax and NICs.
Company Share Option Plan (CSOP) Permits selected employees to buy up to £60,000 of shares at a later date but at the current price. Any increase in value at the date the option is exercised is subject to CGT rather than income tax and NICs. The issuing company must not be under the control of another company (unless it is listed on a recognised stock exchange). No limits on company size or number of employees so can be used by larger companies and those whose trade excludes them from EMI schemes. Can be offered to any employee or full-time working director (unless they already have a material interest in the company).
Save As You Earn (SAYE)
Share Incentive Plan (SIP)
Overview
Employee makes regular monthly contributions from net pay to the scheme which are held for a minimum of three years. Employee then has the option to buy shares at up to 20% discount on market value. While an unlisted company is not precluded from operating a SAYE scheme, in practice such schemes are quite complex and mainly tend to be offered by listed companies.
Employee obtains tax and NIC relief when buying shares in employer’s company (‘partnership shares’). The company may also offer free, ‘matching’ shares, which are not subject to income tax. Shares are normally held in trust until retention periods have elapsed. Due to the need to set up and administer a separate trust and the complexity of the arrangements, SIPs are predominantly used by large, publicly quoted companies.
What types of companies is the scheme suitable for?
Independent companies with gross assets of £30m or less, less than 250 employees and with a ‘qualifying’ trade.
Employee requirements
Can be offered to any full- time employee (unless they already have a material interest in the company).
Has to be made available to ALL
Has to be made available to ALL employees (Under 18 months service can be excluded).
employees (Under 5 years’ service can be excluded).
Minimum share retention period
None.
Three years.
Minimum three years before option to purchase vests, but employer can stipulate longer period. Monthly saving permitted between £10 and £500
Five years retention for full tax advantages, (limited benefits if held between three and five years). Minimum £10 and maximum is the lower of £1,800 p/a or 10% salary Tax relief given when purchasing partnership shares. No tax or NICs due if shares held in trust for 5 years.
Amount of shares that employee can purchase
Up to £250,000
Up to £60,000
Tax and NIC treatment where scheme conditions are met
No tax relief on purchase.
No tax relief on purchase.
No tax relief on purchase.
Income tax is payable if there is any discount on market value at option date, but otherwise, increase in value between grant and exercise date is not taxable on exercise. On sale, CGT is due on proceeds less price paid. Business Asset Disposal Relief may be available.
When option is exercised, the increase in value is not subject to income tax or NICs.
No tax or NIC due when shares are acquired. Any discount given on share purchase (up to 20%) is tax free. On sale, CGT is due on proceeds less price paid.
On sale, CGT is due on proceeds less price paid
No CGT on sale.
TECH BUSINESS | SCRUTTON BLAND | 5
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