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Giving Shares to Employees

Newsletter issue - July 2010

There are a number of approved share schemes that a company can use to provide its employees with shares in the company they work for, or options to buy those shares at a favourable price. The scheme designed for small companies to use is the Enterprise Management Investment scheme (EMI).

If the company chooses not to use one of the approved share or share option schemes and issues shares or options to its employees, there can be some very serious tax consequences, such as:

  • The employee is taxed on the value of the shares he receives as if that value was part of his salary.
  • The company must pay the employer's class 1 NICs on the value of the shares issued.
  • The company must also fund the employee's class 1 NIC and the tax that should have been deducted under PAYE from the value of the shares provided to the employee.
  • If the employee leaves shortly after acquiring the shares, the employer may not be able to recover the PAYE and NIC paid in respect of the value of those shares.
  • If the Taxman views the giving of the shares as part of a tax avoidance scheme, the employee may be subject to tax and NICs on any dividends he receives from those shares, as if those dividends were salary payments.

If you want to provide your employees with shares please talk to us about what you want to achieve, so we can advise on how to do it the most tax efficient manner.