Employee share plans have long been a standard component of overall compensation packages which UK-listed companies provide for their employees. Employers can offer share plans to all of their workers (referred to as “all-employee plans”) or only to specific employees, such as top executives and executive directors.

Share plans are less prevalent in private companies because there isn’t always a market for employees to sell their stock. But private companies often make plans in case they go public or sell to another company. For example, when it is not expected that a future market would exist for the shares of a private company, that company can nonetheless build an internal market for its shares. One way to do this would be to establish an employee benefit trust to purchase shares from employees and then resell those shares to other employees.

The Enterprise Management Incentive share options (EMI) have qualifying characteristics that are aimed at early-stage startups that are developing and innovative. As a result of the fact that these kinds of companies are frequently not publicly traded, EMI continues to be the easiest and most advantageous scheme structure available to companies that meet the requirements.

Where EMI is unavailable, the Company Share Option Plan (CSOP) is a tax-advantaged alternative share option scheme. CSOP has limitations relating to the qualification of shares; thus, it’s not always practical for an unlisted company.

In the event that EMI and CSOP are not an option, there are a variety of different structures that can be utilised to provide a tax treatment that is potentially more desirable than standard non-tax advantaged share options. Growth shares, flowering shares, joint share ownership plans, and partly paid shares are all examples of these types of shares. All of these arrangements give employees the opportunity to acquire a stake in shares on the day of the award and make them liable for capital gains tax in the event that the shares are sold or floated at a later date.

When the tax treatment of an incentive plan is not the primary factor at play, a straightforward non-tax advantaged share option may be able to give the level of simplicity that is desirable for all involved parties. When choosing the most appropriate share incentive programme for your company, you need to take a comprehensive strategy that takes into account a wide variety of factors, one of which is the tax situation of both the company and each individual participant.