Employment Tax

Why use a share scheme?

Produced by Tolley in association with Andrew Rainford
  • 14 Oct 2021 20:03

The following Employment Tax guidance note Produced by Tolley in association with Andrew Rainford provides comprehensive and up to date tax information covering:

  • Why use a share scheme?
  • Size of organisation
  • Top 10 list of reasons for utilising share-based incentives
  • Recruiting staff
  • Retaining staff
  • Matching the offerings of competitors
  • Staff pressure
  • As a supplement to low salaries
  • To replace bonuses
  • Tax breaks
  • More...

Why use a share scheme?

If you talk to enough company directors, it becomes apparent that there are numerous reasons why they have decided to implement share schemes. For the most part, employee share incentive arrangements are only introduced after considerable thought and planning. As a result there is every chance that they will fulfil an organisation’s expectations.

However, on occasion share schemes are implemented at the suggestion of professional advisers who have not fully explained the benefits. This is clearly not the best route to derive maximum benefit for the company or its employees.

The underlying factors that lead companies to introduce schemes tend to be very different depending on their size. Ultimately though, the main goal is almost always to persuade employees to perform better and in doing so help the company or group to achieve the best results possible.

Size of organisation

Large companies, such as those quoted on the FTSE 100 list, generally offer a number of different share incentives arrangements, primarily because the market and their investors expect them to.

Typically, this will include significant offerings to top directors that might often be potentially worth more than their annual salaries. However, these will be linked to performance targets and may never get paid.

From time to time there is controversy about directors who apparently underperform but still receive massive share-based payments. This has become a consideration for those running schemes in larger companies.

At a lower level, company-wide schemes are regarded by such organisations as a usual or even necessary part of employment packages.

Middle ranking companies are more likely to present packages to key employees but not necessarily to everyone else. They will probably be keen to use selective schemes such as EMI, CSOP or flexible (but not tax-advantaged) share options, but rather than exclusively offering the plan to directors, they may extend it to senior and middle managers, and in some cases further down the scale as well.

The owners of small companies will typically have strong

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

Think Tax.
Think Tolley.

Critical, comprehensive and up-to-date tax information

LEARN MORE LEARN MORE

Popular Articles

Structures and buildings allowance

What is structures and buildings allowance (SBA)?From 29 October 2018, expenditure on constructing a non-residential building or structure, or in certain cases, expenditure on acquiring such a building or structure, qualifies for an SBA. The following note has been updated for the changes announced

05 Jan 2022 14:50 | Produced by Tolley Read more Read more

Class 4 national insurance contributions

Class 2 and Class 4 national insurance contributions (NIC) are paid by self-employed individuals and partners in a partnership on their profits arising within the UK. This guidance note considers Class 4 contributions. For Class 2 contributions, see the Class 2 national insurance contributions

19 Oct 2021 22:37 | Produced by Tolley Read more Read more

Capital allowances computations

Plant and machinery allowancesThree types of allowance are available for expenditure on plant and machinery:•the annual investment allowance (AIA), which currently provides a 100% allowance for the first £1,000,000 of expenditure per year, see the Annual investment allowance (AIA) guidance

19 Oct 2021 08:11 | Produced by Tolley Read more Read more