Employee share schemes can help businesses keep their best people engaged, motivated and aligned with long-term growth. They can also support succession planning by allowing shareholders and directors to pass value to key employees in a structured and tax-efficient way.
Stratos advises business owners, shareholders, directors and professional advisers on employee share schemes, including EMI schemes, share option arrangements, growth shares and employment-related securities reporting.
Explore whether an employee share scheme could help you retain key people, protect cash flow and support your succession plans.
What is an employee share scheme?
An employee share scheme is a way of giving employees a direct or future interest in the value of the company. Depending on the structure, employees may receive shares, options to acquire shares in future, growth shares, or another form of equity-linked incentive.
The right structure will depend on the company, the employees being rewarded, the growth plan, the existing shareholders, the tax position and whether the incentive is designed for retention, performance, exit planning or succession.
Why implement an employee share scheme?
A well-designed scheme can help a business reward people without relying solely on salary increases or cash bonuses. It can also give key employees a clearer stake in the future value they are helping to create.
An employee share scheme can:
- Attract, retain, incentivise and reward key staff.
- Align employees with the long-term success of the business.
- Increase motivation, productivity and performance.
- Reduce pressure on cash flow compared with bonuses or salary increases.
- Support shareholder succession by helping key employees acquire value over time.
- Create a structured incentive linked to growth, performance targets or a future exit.
- Provide potential tax advantages where the relevant scheme conditions are met.
Common employee share scheme options
The most suitable structure depends on the commercial objective. Common options include:
- Enterprise Management Incentive (EMI) schemes for qualifying companies that want a flexible and tax-efficient way to incentivise selected employees.
- Company Share Option Plans (CSOPs) for companies that want a tax-advantaged option scheme but do not qualify for EMI or need a different structure.
- Growth shares, where employees participate in future growth above an agreed hurdle value.
- Unapproved share option schemes, which can be tailored where approved schemes are not suitable.
- Share Incentive Plans (SIPs) or Save As You Earn (SAYE) schemes, which may be more suitable for wider employee participation in some businesses.
Why tax advice matters before implementation
Employee share schemes can be highly effective, but the tax and compliance rules are complex. The chosen structure needs to be aligned with the company’s commercial goals, the shareholders’ objectives and the relevant HMRC rules.
Advice is especially important where shares are being transferred at market value, options are being granted to employees, growth shares are being created, or the arrangement needs to qualify for a specific tax-advantaged regime.
Issues to consider include share valuation, option terms, employment-related securities rules, shareholder agreements, articles of association, HMRC notifications, annual ERS reporting and the tax position for both the company and the employee.
How can Stratos help you?
Stratos can help design, review and implement employee share schemes that are commercially practical and tax-efficient. We work with business owners, finance teams, accountants and legal advisers to make sure the scheme supports the intended outcome before it is put in place.
We can assist with:
- Assessing whether an employee share scheme is suitable for your business.
- Comparing EMI, CSOP, growth shares and other incentive structures.
- Reviewing eligibility for HMRC-approved or tax-advantaged schemes.
- Advising on share valuations and market value considerations.
- Designing scheme terms around retention, performance or exit objectives.
- Working with solicitors on option agreements, articles and shareholder documents.
- Supporting HMRC notifications, EMI reporting and ERS compliance.
- Helping shareholders plan succession or employee ownership routes.
Plan your employee share scheme before options or shares are issued
If you want to reward key people, protect company cash flow or create a succession route for employees, the structure should be reviewed before shares or options are issued.
Contact Stratos to discuss whether an employee share scheme could benefit your business and which structure is likely to fit your commercial objectives.
Related News
Do you need to register for Self Assessment?
HMRC mileage rates rise to 55p: what you can claim
Case Study
Driving Growth with an EMI Share Scheme
The Challenge
Our client is a shareholder preparing to step back from the day-to-day running of their business. They wanted to reward and retain 4–5 key employees who were taking on increased responsibility as the main shareholder steps back from the business. With plans to build the business towards a trade sale within the next 10 years, the goal was to align the team’s interests with long-term growth and ensure continuity. The client sought a tax-efficient and motivational share scheme that would only deliver value to the employees on a successful exit.
The Solution
We worked with the client to assess the most appropriate structure for incentivising the leadership team. While a growth share arrangement was considered, we ultimately recommended an exit-only EMI scheme due to its significant tax advantages for both the company and the employees.
The EMI scheme was designed so that value would only accrue to the employees upon a successful sale of the business, aligning their personal rewards directly with the company’s future success.
The Value
The scheme has helped secure the commitment of key staff during a period of leadership transition and provided them with a clear stake in the company’s growth. The EMI structure offers a compelling, tax-efficient incentive, and positions the business well as it moves toward a potential exit event over the next decade.
FAQs
An employee share scheme gives employees a direct or future interest in company shares or company value. It can be used to reward, retain and motivate key staff, or support succession planning.
An Enterprise Management Incentive scheme is a tax-advantaged share option scheme for qualifying companies. It is often used by growth companies and owner-managed businesses to reward selected employees.
Potentially, yes. A share scheme can provide a valuable incentive without relying entirely on salary increases or cash bonuses, although the design must still be commercially appropriate and properly documented.
Many share and option arrangements fall within employment-related securities reporting rules. EMI schemes and other ERS events may need to be reported by the relevant deadlines, even where there has been no activity in the year.
Usually, yes. Valuation is often central to the tax treatment and commercial fairness of the arrangement, especially where shares or options are being granted to employees.
Yes. A share scheme can help key employees participate in the future value of the business and may support a gradual transition of ownership or leadership, depending on the shareholders’ objectives.
Looking for a specific service?
Find what you're looking for here
Related Services
EMI Share Schemes
Succession Planning
ERS
Business Sales
Employment Taxes
Employee Ownership Trusts
Valuations
