Share Schemes and Employee Shareholders

For many businesses their employees will be their most important asset. Key employees may be rewarded and provided with the incentive of equity participation, share ownership or share options.  Where correctly drafted, such arrangements can be tax efficient for both the employer and the employee and they can encourage loyalty and an entrepreneurial culture among staff.  Poor advice can lead to tax liabilities and unrest from key employees

Approved Share Schemes

Wider employee ownership is perceived as beneficial to the economy and so certain types of scheme are approved by HMRC. This means that provided certain conditions are met there, there is some transparency as to how the arrangement will be viewed by HMRC.  This creates some certainty for both the employer and the employee and enables sensible tax planning to tax place.

EMI (Enterprise Management Incentive Schemes) Option Schemes

EMI Option Schemes are a popular form of management incentive.  A company must be a qualifying company, so companies above a certain size are excluded as are some sectors.  Employees must be qualifying employees, so they must work a certain amount of time within the company and there are restrictions on the value of shares that each employee may receive. We can advise corporate clients upon putting in place these arrangements.  We can also provide independent advice to employees, which may be advisable, but is not a legal requirement.

Growth or Flowering shares

Where a scheme is not an approved scheme employees may be subject to tax on the difference between the market value of the shares and what they pay for those shares. Growth or flowering shares may provide an appropriate arrangement where an approved scheme may not be possible or suitable.  These provide holders with value only where the total value of the company is above a certain level.  Employees participate in the growth of the company rather than the current value, so it may be argued that those shares have a significantly lower market value than shares which fully participate and so may be more accessible to employees.  The value of growth or flowering shares cannot be agreed in advance with HMRC unlike certain other arrangements, so the tax treatment may be less certain. George Green has extensive experience in this area.

Employee shareholder schemes

Employees may be offered employee shareholder status.  The employee accepts shares having a minimum value and which must not be paid for by the employee in place of certain employment protection rights that an employee would ordinarily enjoy.  The employee must have independent legal advice prior to becoming an employee shareholder.  We can advise companies looking to offer employee shareholder status as well as providing independent advice to employees.


What happens to an employee’s shares when he or she leaves the company?  Sometimes it may be appropriate for those shares to be re-allocated to another employee or replacement appointee.  There may be a gap between the departure of one employee and the appointment of another.  An appropriate structure may need to be put in place for the shares to be bought back and held with a view to being re-allocated at an appropriate time, a process known as warehousing.  We can advise on suitable share warehousing arrangements and their operation.