Share options can be a useful means of incentivising key staff to help grow the value in the business. Enterprise Management Incentive (EMI) options are one of the few HMRC approved schemes which allow you to pass over capital value to your employees in a tax efficient manner. The starting point for tax purposes for any employee or director acquiring shares is that they will pay income tax (and possibly national insurance) on the difference between the value of the shares acquired and what they pay for them.
If you grant an EMI option to an employee then you are able to lock the value of the share for tax purposes to its value when the option is granted. So any growth in the value of the shares in the company after the option is granted can be acquired by the employee without any liability to pay income tax. On a sale of the shares the employee would then pay capital gains tax but should be able to benefit from entrepreneur’s relief. The company may also be able reduce its corporation tax liability when the options are exercised.
Where EMI options are not available, you may also want to consider growth shares which are a mechanism to give employees shares which will only have value if the company grows in value. In either case, we will work with you and your accountants to put in place the appropriate option agreement and articles of association to incentivise your employee without unnecessarily impacting on the existing management and shareholding structure.
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