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if we want to use shares to incentivise people to join us, what are our options?

19 May 2017
Beth Dowson, a tax specialist, highlights some things to think about when using shares to recruit, retain and incentivise employees.


Speaker key
Beth Dowson

Many companies like to use shares to recruit, retain, and incentivise employees, particularly startups when there's not a huge amount of cash floating around in a business.

This can be a really effective way to incentivise employees, but you just have to be careful because there is a raft of tax legislation that you need to make sure you don't fall foul of.

In terms of the actual way in which you can get shares to your employees, you could just give them to them on day one. If you do that, then the main tax pinch-point to be aware of is that you're going to have an income tax and, potentially, a national insurance contributions charge. To the extent that the individual doesn’t pay full market value for the shares that they're acquiring, as a result of their employment or their directorship.

Also, if the shares have certain restrictions on them, in terms of what can and can't be done with them once the individual’s acquired them, that can give rise to additional tax considerations too.


Alternatively, rather than giving the shares on day one, you might rather give a share option to say to the employee in certain circumstances in the future – maybe a company sale, or if they've reached particular performance targets, or been with the company for a particular time – that they can exercise their option and acquire shares at that point in time. Based on the terms, including the price, that you agreed when you granted the option.

Everything else being equal, if you just use any old option, then if you’d given them shares on day one, there's going to be an income tax and potential national insurance contributions charge. To the extent that they're not paying the full value of the shares on the date that they acquire them.

However: you might be able to get around this by using one of a handful of HMRC’s tax advantage schemes, such as EMI, Enterprise Management Incentive options, or CSOPs, Company Share Option Plans.

There are various different alternatives, so the key, if you're trying to think about incentivising or recruiting employees using shares, is to make sure that you’ve thought through the various alternatives and that you've picked the right one for your circumstances, both commercial and from a tax perspective.


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The opinions expressed on this video are provided for the purposes of general interest and information and should not be relied upon. They contain only summaries of aspects of the subject matter at the time of publishing and do not provide comprehensive statements of the law. They do not constitute legal advice and do not provide a substitute for it. So why not talk to us and seek advice that's tailored to you? You can look up one of our experts on this website or call on 0370 270 6000.

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