Stop. Look. Share Scheme. Live.🦔

Whether your clients are;

• Bringing family into their business;

• Motivating or ‘locking in’ key employees;

• Attracting special or management recruits with an amazing employee package;

• In conversations with potential investors;

They’re wanting to talk about share schemes.

And they’re all motivated by tax efficiency.

In fact, it often feels like EMI is the nirvana, the ultimate goal everyone’s gunning for. But there’s so much to consider, and even more to offer.

When someone wants to talk share schemes, you’ve simply gotta:

Stop. Look. Share Scheme. Live.

🦔

STOP

Before anyone gets fixed on any one thing… pause. There’s questions to ask and uncertainty to make clear.

There are numerous options to explore, including:

• Share Incentive Plan (SIP) 

• Save as You Earn (SAYE) 

• Enterprise Management Incentive (EMI) 

• Company Share Option Plan (CSOP) 

• Growth and/or freezer shares 

• Grant of Ordinary shares 

• Grant of Alphabet shares

It’s great if your client feels like they know what they want, but without expert guidance, they could be ushered towards disappointment. That’s why it’s essential to educate clients of the variety of outcomes, and then ask some questions:

1. Will the shares be voting/non-voting?

2. Will the shareholders have voting rights?

3. Will the shareholders have rights to sale proceeds?

4. Will the shareholders need varied share classes?

5. How many, and Where are the shares coming from? Dilution is a major consideration for current shareholders.

6. Have any vesting conditions been considered?

7. What are the ‘leaver’ provisions you would like?

The list goes on.

LOOK

Bring in a tax advisor – quick! Before their heart settles on a suboptimal option.

Your client’s need an expert tour guide, when embarking on a share scheme safari.

After learning about your client’s objectives, they need to explore an options report to understand the net positions, HMRC rules, pro’s, con’s, and risks with each – so that they can make an educated and thorough decision.

You ought to seek out a partner who offers expert advice, trusted implementation, and meticulous, almost parental, supervision of the legal work required to achieve the agreed outcome.

SHARE SCHEME

Once the Tax Advice is complete, and the client has come to a decision, it’s time to bring it all to life!

Valuation

If your client decides to put in a share scheme, it’s likely that they will need to obtain a valuation or two. If, for example, a client chooses an EMI scheme, they would be required to submit their unrestricted market value AND actual market value to HMRC.

Implementation

The next phase will then entail preparing share scheme docs, legal docs, and designing the share scheme structure. We’ll spare you of the details, for now. But it’s no intuitive ‘dummies guide’ to-do list.

LIVE

After a share scheme is established, the party doesn’t stop there.

It’s possibly been a long ride since the initial Tax Advice report, and your clients deserve a refresher of their immediate benefits, rolling responsibilities, and their long/short term considerations.

The impact of a share scheme can come in many forms. It might be a motivation boost, a new recruit, or even the perfect setup to start discussing the steps towards your own exit. We can never work backwards in, in tax advice. Whilst everything is fresh in people’s minds, how far ahead are you willing to help your clients look?

So, there you have it.

Share schemes in the UK can be a powerful way to align the interests of employees with those of shareholders, in a tax efficient way.

Tax efficiencies are only achieved when the scheme is structured correctly.

Broadly, schemes fall into two categories: HMRC-approved arrangements—such as EMI (Enterprise Management Incentives), CSOP (Company Share Option Plans), SIP (Share Incentive Plans), and SAYE (Save As You Earn)—and unapproved or “alternative” schemes, which offer greater flexibility but typically less favourable tax treatment.

Approved schemes, particularly EMI, are the most talked about, especially with growing companies. We often talk to people who are shocked to find out that they don’t meet the eligibility criteria, or that we advise them to take an alternative route after learning a bit more about them.

Unapproved options or growth shares can fill this gap, allowing businesses to tailor incentives more freely, though usually at the cost of higher income tax exposure. Sometimes these options have a greater appeal to family-oriented planning.

The boogeyman that every current or founding shareholder is steering away from is, and always will be… DILUTION. It’s a critical consideration across all schemes. You see, issuing new shares reduces existing shareholders’ percentages, which can impact control and value. Careful modelling and use of share options can help balance incentivisation with shareholder protection.

Share schemes are frequently used to motivate, attract, and retain key employees. But they are best off being part of a bigger plan, with more detail and planning - whether that’s preparing for a future exit, supporting a management buyout (MBO), or transitioning ownership to the next generation.

In family-owned businesses, shares may also be gifted to relatives as part of estate or succession planning.

Tax, legal, and commercial factors are all heavily entwined in this field. We strongly recommend speaking to Tax Adviser in the first instance, to make the optimum plan with the best commercial and financial results. It is essential to seek advice from a Chartered Tax Adviser before implementing any share arrangement. The right structure can deliver significant benefits, but missteps can be costly and difficult to unwind.

That’s why we recommend the 4 aforementioned steps: STOP. LOOK. SHARE SCHEME. LIVE!

You wouldn’t believe how many times we have to talk someone backwards from a suboptimal scheme, before helping them towards their ultimate goal… their nirvana!