If you’ve never really given any thought to using dividends in your tax planning arsenal, then now’s a ...
Secure the recovery and success of your business through share schemes
2 June 2020
COVID-19 has undoubtedly created challenges for businesses up and down the UK. During these difficult times for business, key employees will be more valuable than ever to ensure the business survives, and then flourishes in recovery. At a time where immediate cash incentives will be difficult to justify, employee engagement and retention will be hugely important, even for the most entrenched employees. So let’s explore share schemes in more detail…
Why should i consider a share scheme?
A share scheme could be an efficient and cost-effective way of incentivising key employees so they remain in the business, and share in its survival, recovery and success.
A few key reasons why a share scheme should be considered:
- If the value of the company has reduced as a result of recent events, incentivising with equity can enable employees to participate in the future recovery and growth, that will be born out of their hard work and loyalty to the business.
- Employees are more engaged and are less likely to leave something that they feel apart of. Share schemes are proven to increase employee motivation retention and can help avoid recruitment costs.
- It may be recognised that employees deserve a reward, but draining cash reserves with bonuses, and the associated tax costs might not be feasible – shares or share options could be the solution.
What are my options?
There are dozens of options available when looking at incentivising with equity, be it through an immediate shareholding, or target related options to acquire shares in the future – most of which can be structured in a way that doesn’t incur any immediate tax costs.
Enterprise Management Incentives (EMI) schemes are some of the most popular routes to providing an equity incentive. EMIs are a tax advantaged share option scheme – meaning employees can be granted options to acquire shares in the future, at a price agreed now (usually the current market value of the shares over which options are granted). Being tax advantaged simply means that no income tax is charged on any increase in the value between the current market value of the shares and their value when the options are exercised (and employee receives them) – potentially providing a substantial benefit to the employee.