In today's fast-paced business world, attracting and keeping top talent is more challenging than ever. Companies need to offer more than a competitive salary-employees want to feel invested in their workplace. That’s where share schemes come in. These schemes not only motivate employees by giving them a direct stake in the company's success but also provide valuable tax benefits for both the business and its workforce. But with so many options available, how do you choose the right one? Let’s look at the most popular share schemes in the UK.
Imagine a savings account that rewards you with discounted company shares at the end-this is essentially how SAYE works. Employees commit to saving a fixed amount every month (up to a maximum of £500) over a three- or five-year period. At the end of the term, they can use their savings to buy shares at a pre-agreed price, often at a discount – HMRC will allow a discount of up to 20%. The best part? No Income Tax or National Insurance (NI) is due on the difference between the purchase price and market value, and Capital Gains Tax (CGT) only applies when selling the shares. For those looking for a low-risk, disciplined way to invest in their company, SAYE is a solid choice.
For companies looking to promote a culture of ownership, SIPs provide an excellent solution. Employees can receive shares through various means: Free Shares awarded by the company, Partnership Shares purchased by the employee, Matching Shares provided by the employer as a bonus, and Dividend Shares reinvested from dividends earned. The longer shares are held within the SIP, the greater the tax benefits. If employees keep their shares for at least five years, they won’t have to pay Income Tax, NI, or CGT when they sell them. Employers also benefit from Corporation Tax relief. SIPs are a great way to align employees' interests with the long-term success of the business.
For small and medium-sized enterprises (SMEs), EMIs are one of the most tax-efficient ways to reward key employees. Under this scheme, employees receive share options at a pre-agreed price, without having to pay Income Tax or NI at the time of the grant. When they eventually sell their shares, they only pay CGT-often at a reduced 10% rate if they qualify for Business Asset Disposal Relief (BADR). However, please note the rate of BADR is increasing to 14% from April 2025 and 18% from April 2026. Employers can also claim Corporation Tax relief. EMIs are designed to help smaller businesses attract top talent without the high upfront costs of traditional salary increases.
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Larger companies that don’t qualify for EMIs often turn to CSOPs. This scheme allows employees to purchase shares at a set price, with tax advantages if they meet the required holding period. However, the purchase price of these shares is restricted to £60,000 due to the savings from the relief Employees won’t pay Income Tax or NI if they hold their options for at least three years before exercising them. While CGT applies on sale, tax relief may be available. Employers also benefit from Corporation Tax relief. CSOPs are ideal for businesses looking for a structured yet flexible share incentive plan that works across different employee levels.
Not every business qualifies for HMRC-approved share schemes, but that doesn’t mean they can’t offer equity incentives. Growth shares allow employees to benefit from future increases in company value while starting at a lower initial valuation, which helps reduce tax liabilities. Unapproved share schemes, on the other hand, offer more flexibility but come with higher tax costs, with Income Tax and NI due upon exercise. While less tax-efficient, these schemes can be structured to suit fast-growing businesses looking for bespoke incentive plans.
Selecting the right share scheme depends on several factors. Company size plays a key role - EMIs are perfect for SMEs, whereas larger companies may benefit more from CSOPs or SIPs. Employee retention goals also matter; if a company wants to encourage long-term loyalty, a scheme like SIPs might be ideal. Tax efficiency is another crucial aspect - approved schemes typically offer greater tax benefits than unapproved ones.
Share schemes aren’t just about financial incentives, they create a sense of ownership, motivation, and alignment between employees and the business. Whether you’re an employer looking to implement a tax-efficient reward scheme or an employee considering participation or already participating, understanding the tax implications is crucial. With the right planning and advice, share schemes can be a game-changer for both businesses and their teams.
Want to explore the best share scheme for your company? Please contact us to arrange a free consultation call.
