Definition
Arrangements that allow employees to acquire shares in their employer's company, often on favourable tax terms. UK-approved share schemes include Share Incentive Plans (SIP), Save As You Earn (SAYE), Company Share Option Plans (CSOP), and Enterprise Management Incentives (EMI).
UK Context
HMRC-approved share schemes offer significant tax advantages. SIP shares held for five years are free of income tax and NIC. SAYE options exercised after three or five years incur no income tax on the discount. EMI options (for qualifying companies with gross assets under 30 million pounds) offer capital gains tax treatment on exercise. All schemes must be registered with HMRC.
Best Practices
- Register approved share schemes with HMRC and file annual returns by 6 July each year
- Provide clear communications to employees about how each scheme works and the tax implications
- Consider which scheme type best aligns with the company's size, ownership structure, and objectives
Frequently Asked Questions
What are the main HMRC-approved share schemes?
The four main schemes are Share Incentive Plan (SIP), Save As You Earn (SAYE), Company Share Option Plan (CSOP), and Enterprise Management Incentives (EMI). Each has different eligibility criteria, limits, and tax treatments.
Do employees pay tax on shares from a Share Incentive Plan?
If SIP shares are held in the plan trust for at least five years, they are free of income tax and NIC when withdrawn. Shares withdrawn between three and five years incur income tax and NIC on the value of free and matching shares. Shares withdrawn before three years are fully taxable.