In a growing business, maintaining cash is a daily struggle and one of the key cash expenses is wages and bonuses. To retain key staff often requires significant bonuses to avoid them leaving to bigger competitor firms. Furthermore, even if a big bonus is paid one year, it is often difficult to align workers goals to owners over a longer period.
There are a number of HMRC recognised share incentive arrangements which allow small and medium companies to provide shares in their company in a tax efficient manner. For owner managed businesses the main share incentive arrangements would be:
- Enterprise Management Incentives (“EMI”); and
- Company Share Option Plan (“CSOP”).
EMI and CSOP allow companies to grant options over shares in a company and any gains arising on the disposal of the shares should be subject to capital gains tax rate at either 10% or 20% depending on the individual’s personal tax rate.
Under EMI, if an individual disposes their shares after a certain time frame, any gains arising on their shares being disposed of, would attract Entrepreneurs’ Relief capital gains tax rate of 10% up to the first £1m of gains.
There is flexibility in the design to ensure that performance conditions meet the goals of the shareholders.
How we can help?
Share incentive plans should always be designed with meeting a companies’ commercial goal. At Huw John & Co. we can advise you on what is the best arrangement to meet your specific needs and design a plan which will ensure staff are suitably motivated to drive your business forward and incentivised to stay with the business.