One of the unfortunate effects of an economic downturn is that employee remuneration can be adversely affected, because employers have less capacity to recruit new staff and employees may be subject to smaller salary rises or pay freezes.
In such a tough environment, it is more important than ever for employers to be able to retain and incentivise staff. There are a number of share schemes that can help achieve this, including HM Revenue and Customs-approved plans.
Incentives such as the share incentive plan (Sip) and the enterprise management incentive (EMI) scheme have been approved, insofar as they are governed by legislation and benefit from favourable tax treatment. For example, participants in a qualifying EMI scheme can, subject to proper planning, make significant tax savings on the shares they acquire. Instead of paying up to 50% income tax plus additional national insurance contributions (NICs), they could be paying as little as 10% capital gains tax.
Although the tax treatment can be significantly more favourable under an approved scheme, these are also subject to specific requirements that need to be satisfied. Taking the EMI scheme as an example, there are specific conditions that apply to the employer. For example, the employer must be carrying out a ‘qualifying trade’, to which there are specific exclusions, and the employee must be employed by the organisation for 25 hours a week or 75% of their working time, whichever is less. There are also more general conditions.
The first step in effectively incentivising employees is knowing there are conditions that need to be satisfied. Specialist advisers can help analyse whether approved schemes may be a viable option for an organisation, and help maximise employee incentivisation in a tax-efficient manner.
Amanda Solomon is partner, head of corporate tax at Charles Russell