Set up employee share schemes

These HM Revenue & Customs (HMRC) approved share schemes are typically targeted at selected employees with unique or highly valued skills that are in scarce supply.

Company Share Option Plans (CSOP)

Employers can grant employees share options on up to £30,000 worth of shares each.

Income tax or National Insurance does not have to be paid on the difference between what was paid for the shares and what they are worth.

However Capital Gains Tax may have to be paid if the shares are sold.

Read HMRC guidance on CSOP employee share schemes.

Enterprise Management Incentives (EMI)

You can grant share options worth up to £250,000 and Income Tax or National Insurance on the difference between what had been paid for the shares and what they are actually worth does not have to be paid.

Capital Gains Tax may have to be paid if the shares are sold.

Read HMRC guidance on EMI employee share schemes.

Share Incentive Plans (SIPs)

There are four ways employees can get shares under SIPs:

• free shares - employers can give staff up to £3,600 worth of free shares in any tax year.
• partnership shares - each year, employees can buy a further £1,800 worth of partnership shares from their gross salary, or up to 10 per cent of gross salary, whichever is less.
• matching shares - employers can give up to two matching shares for every share the employee buys.
• dividend shares - if the employer's scheme allows it, employees may be able to buy more shares with the dividends they get from free, partnership or matching shares.

Read HM Revenue & Customs (HMRC) guidance on SIPs.

Save As You Earn (SAYE)

This savings-related share scheme allows employees to save up to £500 per month for three or five years. At the end of the savings contract (3 or 5 years) the employee can use the savings to buy shares for a fixed price. Employees get a tax-free bonus if they complete the savings plan.

The tax advantages are that the bonus and interest at the end of the scheme are tax free. In addition the Income Tax or National Insurance does not have to be paid on the difference between what was paid for the shares and what they are worth.

Read HMRC guidance on SAYE.