June 29, 2022

Rachel WarrinerBy Rachel Warriner, head of corporate tax at RMT Accountants & Business Advisors Ltd

A lot has been written over recent months about a post-pandemic workplace trend dubbed ‘The Great Resignation,’ which has seen a large proportion of the British workplace deciding that it’s time for a change.

Industry research suggests that almost a third of UK workers are planning to look for a new job this year, with sectors including legal, technology, sales, media and marketing being most likely to be affected.

The reasons for people leaving their jobs can of course be many and varied, but regardless of the reason, the impact of losing key staff on a business’s operations and performance can be highly significant, especially at a time when many are still struggling to make up ground lost during the pandemic.

With the current job market very definitely being in favour of skilled workers looking for a new challenge, the incentives that they are being offered to encourage them to stay are making a big difference to individuals’ workplace commitment.

One area where we are seeing a lot of interest is employee share option schemes, which usually fall into two main categories – approved share option schemes and unapproved share option schemes.

The most common and tax efficient approved scheme is the Enterprise Management Incentive (EMI).  This is a tax-advantaged share option scheme designed to help smaller companies attract and retain key staff by enabling them to acquire shares over a period of time at a set price.

The main benefit of EMI schemes is that no income tax arises and no National Insurance contributions (NICs) are charged when the EMI options are granted, and potentially no income tax or NICs are chargeable when the options are exercised.

In addition, EMI option shares which are exercised and ultimately sold may benefit from Business Assets Disposal Relief resulting in a ten per cent tax rate on the disposal of the shares.

Not all industries or employees will qualify for an EMI scheme, so taking professional advice on how they might work for your business is essential, but for those that do, they offer a flexible option which can make a significant difference to your business’s short and long-term chances of commercial success.

A company may ultimately decide to grant share options outside of the approved schemes.  These unapproved schemes do not benefit from the attractive tax reliefs of the approved schemes and as a result the employee could be subject to income tax and NIC when the options are exercised.

However, despite the tax implications, an unapproved scheme may be better suited to some businesses and still ensures staff commitment to the business.

The criteria for the participation in the option scheme and for the eventual exercise of the options must all be determined.  Legal advice is required to draw up the option scheme rules and the option agreements and will document what would happen should an employee leave the company before those options are exercised.

As an alternative to using share option schemes, a company may decide to introduce a new class of shares which allow employees to participate in the future growth in value of the company, whilst enabling current shareholders to lock in built up value to date – and if structured correctly, the employee could acquire the shares with minimal tax implications arising.

For further information on employee share option schemes and all aspects of corporate taxation, please contact Rachel Warriner at RMT Accountants & Business Advisors on 0191 256 9500 or visit


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