Attracting, retaining, and motivating top talent is a challenge many growing businesses face. While competitive salaries and bonuses play a role, more and more employers are looking to share incentives as a longer-term strategy to reward key employees and align their goals with the company’s success.
At Dunkley’s Accountants, we regularly advise businesses across Bristol and the UK on designing and implementing effective share schemes, with a strong focus on tax advice and ensuring that any implications are fully understood and optimised. If you’re considering how to offer ownership or equity-based rewards to senior staff, here’s what you need to know.
What Are Share Incentives?
Share incentives allow employees to gain an ownership interest in the business. They can take various forms, including:
- Share options: The right to buy shares in the future at a fixed price.
- Growth shares: A special class of shares that only benefit from future company growth.
- Enterprise Management Incentives (EMIs): A tax-advantaged share option scheme for smaller companies.
- Company Share Option Plans (CSOPs): A formal share option scheme available to larger businesses.
These schemes can be powerful tools for retaining staff, motivating performance, and building long-term loyalty.
Why Consider Share Incentives?
There are several reasons why companies choose to offer equity rewards:
- Retention: Vesting periods encourage employees to stay with the business longer.
- Performance alignment: Employees benefit when the company performs well.
- Cash flow: Share incentives don’t require immediate cash outlay like bonuses or raises.
- Exit planning: Shares can be used to help fund succession strategies or eventual business exits.
When designed and implemented properly, share incentives can add significant value to both the business and the employee.
Tax Considerations: Avoiding Pitfalls
While share incentives offer real benefits, they must be carefully structured to avoid unexpected tax charges. Key areas to consider include:
- Income tax vs capital gains tax: Ideally, employees pay CGT on gains rather than income tax and NICs.
- Valuations: HMRC-approved valuations help ensure option pricing is compliant and tax-efficient.
- Timing: Triggers such as exit events or performance milestones must be clearly defined.
- Documentation: Robust agreements are vital to avoid disputes or misunderstandings.
Our team provides specialist tax advice ensuring your incentive schemes are structured in a way that is compliant, tax-efficient, and aligned with your business goals.
How Dunkley’s Can Help
Whether you’re launching your first share option scheme or reviewing an existing arrangement, we can support you through:
- Designing a share scheme tailored to your business
- Securing HMRC approvals where needed (e.g., for EMI schemes)
- Advising on tax implications for the business and employee
- Liaising with legal advisors to ensure correct documentation
- Providing ongoing support as your business grows or changes
If you want to reward your team and build long-term value, talk to our expert advisors at Dunkley’s today. Based in Bristol, we help businesses across the region with tax advice on efficient share schemes and employee incentives. Call 01454 619900 or email advice@dunkleys.accountants to get started.