Gifting shares in your business to employees as part of a benefits package or even as an incentive is on the rise here in the UK. However, not all employers or employees know the possible tax implications for both parties. This RJF Accounting blog will explain what you need to know if you plan to give employees shares.
GIFTING SHARES TO EMPLOYEES
Gifting shares is a good source of motivation and helps employees participate in the company’s growth. However, tax implications mean that the gift could lead to an increased tax bill both at the time of gifting and further down the line. HMRC have wide-ranging powers when it comes to a company giving shares to its employees, so considering all the options and ensuring that the shares are issued correctly is paramount.
- Income tax applies when employees acquire shares for less than they are worth
- HMRC valuations of employee shares may be higher than expected
- Shares in unlisted companies are usually not liable to PAYE/NIC
- A corporation tax deduction may be available
- EMI share options are an alternative
- Plan the employee exit strategy in advance
- Dividends may be taxable as remuneration in some situations
ARE THERE TAX EFFICIENT WAYS TO GIFT SHARES?
When gifting shares to employees, you should look to do this in the most tax-efficient way possible for both the company and the employee; after all, the employee might not see the shares as a gift if they suddenly become a tax burden!
Two such ways to do this is to consider if they are eligible for Enterprise Management Incentives (EMIs) or HMRC-approved CSOP schemes. In many circumstances, it is always best to seek the advice of a qualified accountant when considering gifting shares so that they can run through the options and know the best way to do it.
WHAT IS AN EMI OPTION?
Enterprise Management Incentive (EMI) options offer tax-advantaged and flexible incentives for companies that meet the qualifying criteria.
EMI options are intended to help smaller companies with growth potential to enable you to recruit and retain the best employees.
They offer significant tax advantages to employees of those companies that qualify. EMIs are a flexible and tax-favoured share incentive arrangement for companies and employees who meet the qualifying conditions.
IS GIFTING EMPLOYEES SHARES A GOOD IDEA?
This depends on your company and the employee’s circumstances. There can be situations where the tax implications could cause headaches for employees, such as corporation tax, capital gains tax, etc. The dividends from the shares could also mean that the employee is required to complete a SATR and incur further costs.
Weighing up the pros and cons, however, so long as the handling of the shares is done correctly, the gifting of shares can be beneficial for both the employee and the company.
As with most things tax-related, it is never as simple as things can seem when handling the gifting of shares. If you are thinking of doing so, please seek the advice of a qualified accountant and possibly a solicitor for legal advice on the ramifications of doing so.