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Employee Benefits Live Share Plans as part of the SME remuneration strategy

September 2014

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Why establish a share plan?

►  Recruit – differentiate against competitors for talent ►  Retain – lock in staff ►  Incentivise – take the company to the next stage(s) of development and

participate in the benefits ►  Part of the short and long term variable pay/reward strategy ►  Are share plans popular?

►  10,160 companies operating tax qualified share plans (HMRC Employee Share Schemes Statistics for 2012 – 13)

►  Many others operate non tax qualified plans

September 30, 2014 Employee Benefits Live Page 1

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What are the main plans out there?

►  Tax qualified ►  EMI – enterprise management incentive options

►  CSOP – company share option plan ►  SAYE – save as you earn share options ►  SIP – share incentive plan

►  ESS – employee shareholder shares (receive free shares in exchange for giving up certain employment rights) ►  Entrepreneurs relief (10% CGT rate for those qualifying)

►  Not tax qualified but tax efficient ►  JSOP – joint share ownership plan

►  Growth share plans – new class of shares

►  Not tax efficient ►  Unapproved share options ►  Share awards – right to receive free shares

September 30, 2014 Employee Benefits Live Page 2

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Typical attributes of SME plans

►  Discretionary – need to pick and choose participants and the level of participation ►  Therefore SAYE and SIP (all employee arrangements) are often eliminated

►  Tax efficient ►  Therefore EMI, provided company qualifies ►  ESS ►  Entrepreneurs relief for certain shareholders ►  If not EMI qualified – JSOP, growth shares

►  Simple to implement, administer and maintain? ►  Options plans (including unapproved and EMI) ►  ESS ►  JSOP and growth shares – complex ►  Entrepreneurs relief – can be complex

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Overview of typical tax position of select plans

Award Exercise/vest Sale Corporate tax deduction

EMI Nothing is exercise price equal to market value

Nothing is exercise price equal to market value

Capital gains tax – 10% if shares sold more than 12 months after grant of option

Gain on exercise deductible

ESS Income tax (up to 45% on value between £2k and £50k

Nothing Zero Initial award value deductible

JSOP/growth shares Undervalue taxed as income (up to 45%)

Nothing Capital gains (28%) on growth in value from award

Initial (small) value deductible. No deduction for growth element

Unapproved options Nothing Income tax (up to 45%)

Capital gains (28%) on growth in value from exercise

Gain on exercise deductible

September 30, 2014 Employee Benefits Live Page 4

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Making the most of your share plan

►  Share plans cost something – ensure you know the cost and are happy with it ►  Make the most of your share plan

►  Communicate – at award ►  Communicate during the vesting period – how is the value moving; what is the value of

the award? ►  Communicate on vesting / realisation

September 30, 2014 Employee Benefits Live Page 5

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Share Plans as part of the SME remuneration strategy

Questions?

September 30, 2014 Employee Benefits Live Page 6

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Thank you Employee Benefits Live Share Plans as part of the SME remuneration strategy

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