Share schemes for SMEs ― overview

By Tolley in association with Grant Thornton

The following Owner-Managed Businesses guidance note by Tolley in association with Grant Thornton provides comprehensive and up to date tax information covering:

  • Share schemes for SMEs ― overview
  • Introduction
  • Approved v unapproved plans
  • Choosing an incentive plan
  • Risk areas


Historically, the development and use of share schemes was often as a result of companies looking to utilise the rules at that time such that the provision of reward via the use of shares (or similar) did not, typically, attract income tax and National Insurance. However, as with all such schemes, the legislation has developed in order to ensure that payments by way of salary or bonus could not be simply recategorised in this way and paid out with less (or even no) tax due.

In respect of share schemes, this legislation has been codified by ITEPA 2003, Part 7. However, a number of the original terms and conditions of that legislation were swiftly adjusted through changes enacted in FA 2003. Whilst the Chapters of Part 7 (and their accompanying Schedules at the end of ITEPA 2003) still remain the source of the majority of the legislation regarding schemes involving shares or securities, the changes introduced by FA 2003 have caused it to be considered a complex area of the legislation which can be difficult to interpret.

A wide range of scenarios are set out in ITEPA 2003, Part 7 where income tax, and potentially National Insurance contributions (NICs), will be due on transactions and events that involve shares and securities, particularly those where the recipients have an employment relationship with the company.

However, share schemes are still a popular method of incentivising employees, and this has been noted by the UK legislature. As a result, a number of specific plans have been approved by HMRC for companies to use.

From 6 April 2014, share schemes, including share option schemes, no longer need to be approved by HMRC in advance of award of the shares or grant of the option. Instead, the taxpayer must provide notification within a certain timeframe and self-certify that a scheme meets the criteria to

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