{"id":497,"date":"2024-06-12T12:28:09","date_gmt":"2024-06-12T10:28:09","guid":{"rendered":"https:\/\/engagethis.co.za\/__external\/vault\/grievelombard\/?page_id=497"},"modified":"2026-02-04T13:22:06","modified_gmt":"2026-02-04T11:22:06","slug":"employee-share-schemes-for-smes","status":"publish","type":"page","link":"https:\/\/grievelombard.com\/uk\/services\/tax\/employee-share-schemes-for-smes\/","title":{"rendered":"Employee Share Schemes for SMEs"},"content":{"rendered":"\t\t
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Home<\/a><\/span><\/span><\/p>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t

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TAX<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Employee Share Schemes for SMEs<\/h1>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t
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Empower Your Team with Employee Share Schemes<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Imagine a workplace where your team is motivated, productive, and committed to the success of your business. This is the power of Employee Share Schemes (ESS) for start-ups and Small to Medium-sized Enterprises (SMEs). By offering equity as part of the compensation package, you can attract and retain skilled staff, whether key employees, non-employees, or part of your international team.<\/p>

Research shows that start-ups and SMEs with ESS experience lower employee turnover, higher sales, increased productivity, and growth. This is because ESS inspires your team to perform to the best of their abilities, knowing they have a stake in the company\u2019s success.<\/p>

Three schemes best suited for start-ups and SMEs are Enterprise Management Incentives (EMI) Options, Unapproved Options, and Growth Shares. These schemes offer key employees the opportunity to purchase shares or share options, allowing them to benefit from their company\u2019s growth alongside the owners.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Key Benefits of Employee Share Schemes (ESS):<\/h3>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Attract and Retain Key Employees:<\/h4>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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The significant tax advantages make ESS highly attractive to employers and employees.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Ability to Select Key Recipients:<\/h4>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Depending on the scheme, SMEs can use it for key staff, non-employees, or international teams.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Ability to Set Terms and Conditions:<\/h4>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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The employer can set conditions for each recipient, including performance and length of service milestones.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Encourages Goal Congruence:<\/h4>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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This unique benefit can be a powerful motivator, especially when paired with the usual salary package.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Support Business Growth:<\/h4>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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The overall business performance will affect the performance of the employee shares.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Invest in your team and your business with Employee Share Schemes.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Employee Share Schemes:<\/h3>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/path><\/svg><\/span>\n\t\t\t\t\t\t\t\t<\/path><\/svg><\/span>\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/span>\n\t\t\t\t\t\t\t\t\t\t\t\tEMI Options for SMEs<\/span>:<\/a>\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t

Enterprise Management Incentives (EMI) is a powerful tool for Small to Medium-sized Enterprises (SMEs) in the UK. This government-backed employee share option scheme allows you to grant your employees the right to acquire shares at a future date, providing a highly tax-efficient way to reward and retain your top talent, including full-time directors.<\/p>

With the flexibility to grant EMI options over Growth Shares, this scheme is perfect for SMEs looking to share equity with their employees. But, to qualify, your company must meet specific criteria, including having gross assets of \u00a330 million or less, not granting share options of a value higher than \u00a3250,000 per employee in a 3-year period, having no more than 250 employees, and can\u2019t be granted to subsidiaries and specific activities, including property development, legal or financial services.<\/p>

The benefits of EMI options are clear:<\/strong><\/p>

  • Best Tax-Efficient Employee Share Scheme:<\/strong> EMI qualifies for Business Assets Disposal Relief (BADR), reducing Capital Gains Tax (CGT) to a 18% flat rate rather than CGT at 24% or PAYE\/NI up to 60%.<\/li>
  • Corporation Tax Relief: <\/strong>The company can claim relief on the financial gain of the employee when the employee sells the shares back to the company.<\/li>
  • Select Key Staff:<\/strong> You can select only key staff and set conditions for each recipient, including performance and length of service milestones.<\/li><\/ul>

    However, there are some limitations to keep in mind:<\/strong><\/p>

    • Strict Eligibility Criteria:<\/strong> Your company must meet the qualification criteria to be eligible for the scheme.<\/li>
    • Pre-Company Valuation Agreement:<\/strong> You must agree on a valuation with HMRC before setting up the scheme.<\/li>
    • Ongoing Administration:<\/strong> The scheme can be complex to set up and requires ongoing administration.<\/li><\/ul>

      Invest in your team and unlock their potential with EMI options.<\/p><\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t\t

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      \n\t\t\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/path><\/svg><\/span>\n\t\t\t\t\t\t\t\t<\/path><\/svg><\/span>\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/span>\n\t\t\t\t\t\t\t\t\t\t\t\tGrowth Shares for SMEs<\/span>:<\/a>\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t

      Growth Shares offer a powerful incentive for businesses where an EMI scheme isn\u2019t an option. With this scheme, your company can issue a special class of shares to a wide range of recipients, including investors, non-employees, employees, and full-time directors.<\/p>

      Growth Shares don\u2019t give recipients a stake in the company\u2019s pre-existing value. Instead, they allow recipients to share in the company\u2019s future growth while protecting the accumulated value for existing shareholders.<\/p>

      When issued, Growth Shares are valued at the \u2018hurdle rate\u2019, meaning their initial value is zero. As the company grows, the value of the shares increases, providing a tangible reward for the recipient\u2019s contributions.<\/p>

      Why Choose Growth Shares? <\/strong><\/p>

      • Available to all industries and companies, with no restrictions like the EMI option.<\/li>
      • Can include a large pool of recipients, including investors and non-employees.<\/li>
      • Offers tax advantages, with no income tax due when the shares are received and only Capital Gains Tax (CGT) due on any gains when sold.<\/li>
      • Allows for customised conditions for each recipient, including performance and length of service milestones.<\/li><\/ul>


        Things to Consider <\/strong><\/p>

        • Can be complex to set up and administer and may incur additional costs.<\/li>
        • Requires ongoing valuations.<\/li>
        • HMRC may dispute your valuation, leading to potential tax implications.<\/li><\/ul>

          With Growth Shares, you can unlock the potential of your business and provide a powerful incentive for growth.<\/p><\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t\t

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          \n\t\t\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/path><\/svg><\/span>\n\t\t\t\t\t\t\t\t<\/path><\/svg><\/span>\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/span>\n\t\t\t\t\t\t\t\t\t\t\t\tUnapproved Options for SMEs<\/span>:<\/a>\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t

          Unapproved options are share options that fall outside the requirements of HMRC-approved share option schemes. While they don\u2019t offer the same tax advantages as approved schemes, they provide a valuable option for non-UK-based staff, making them the perfect choice for international teams.<\/p>


          Why Choose Unapproved Options?<\/strong><\/p>

          • Pay Capital Gains Tax on the gain from the sale of shares. <\/span><\/li>
          • Corporation Tax relief for the company on the financial gain of the employee when the employee sells the shares back to the company. <\/span><\/li>
          • Ideal for non-UK-based staff, with the ability to set customised conditions for each recipient, including performance and length of service milestones.<\/span><\/span>

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            Things to Consider<\/strong><\/p>

            • Income tax is due on shares generated through exercising the option. <\/span><\/li>
            • Can be complex to set up and administer, with potential for higher administrative and legal costs. <\/span><\/li><\/ul>

              With Unapproved Options, you can empower your international team and provide a flexible incentive for growth. <\/span><\/p><\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\t\t