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Employee Share Schemes

Employee Share Schemes

An employee share scheme may either provide employees with shares immediately (usually at an advantageous price or with the help of a loan) or, in the case of a share option scheme, give employees the right to acquire shares in the future at a price which will make the option a valuable benefit if the company does well and the value of its shares increases.

The important matter to consider is whether tax advantages are driving the initiative, in which case strict Inland Revenue rules must be adhered to. In order to obtain favourable tax treatment (i.e. one that qualifies as a Inland Revenue approved employee share scheme), the scheme must be open to all employees, although share option schemes (up to certain limits), may also obtain tax privileges even if only open to selected employees (e.g. executives).

If tax issues are secondary to providing directors and employees with the desired reward structure through an unapproved scheme, such flexibility may well be the possible trade-off for loss of tax relief.

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