taxation 29


Employee share incentives: What are the tax implications?


Share incentives are a popular way to attract, motivate and retain valuable employees. These could be a direct grant of shares or share options exercisable in future, for example, on a company sale. The tax implications for the company and the employee vary widely and advance tax advice is recommended, writes tax director Holly Bedford-Bell


Approved share option schemes


There are a number of tax- advantaged HMRC approved schemes where employee gains are taxed under CGT rather than at higher income tax rates.


Enterprise Management Incentive (EMI) schemes are popular, easy to establish and flexible. If set up correctly, the employee only pays CGT on their gains. With EMI shares, Entrepreneurs’ Relief can be available for less than 5% holdings.


If the company is too large to use an EMI scheme, a Company Share Option Plan (CSOP) can be used which can give a similar CGT treatment for the employee.


Unapproved share option schemes


If an approved scheme cannot be used, unapproved options can be granted; however, these have a higher tax cost for the employee. The value of the shares when the option is exercised less any exercise price is subject to income tax. In some cases, particularly when options are exercised on an exit, this tax is due under PAYE with NIC.


Direct issue or transfer of shares


This can give a better tax result than an unapproved option as the difference between the market value of the shares when received and the amount paid is subject to income tax; further commercial increases in


TAKE A


REFRESHING LOOK


Fantastic promotional and marketing print from one of the UK’s leading environmental printers.


value should be subject to CGT. If shares are issued early or before the company becomes profit-making, the market value is likely to be low.


The shares could be issued at full value but nil or partly paid, so market value is fully 'paid' but funding the purchase price is delayed until an exit event. There is no tax charge on receipt of the shares although the outstanding amount is taxed as if it were a beneficial loan.


Employee shareholder status (ESS)


The employee surrenders certain employment rights in exchange for free shares. Up to certain limits the shares are tax-free when received. Gains on sale up to £100,000 can be tax-free.


Reporting and elections


There are annual HMRC online reporting requirements for share schemes and other share transactions with employees. The deadline is July 6.


S431 ITEPA elections are generally recommended for share acquisitions by employees. These must be completed within 14 days.


Holly Bedford-Bell hbedford@hmtllp.com 01491-579740 hmtllp.com


3 Darwin Close, Reading, Berkshire, RG2 0TB 0118 931 0013 lgsales@lamport.co.uk www.lamportgilbert.co.uk Leaflets • Company Brochures • Publicity Material • Full Design Service • Mailing THE BUSINESS MAGAZINE – THAMES VALLEY – JULY/AUGUST 2016 businessmag.co.uk


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48