Set up employee share schemes

Defining share-option and share-award schemes


Share-option schemes

Share-option schemes are typically used as an incentive for employees.

A share option is the right to buy a certain number of shares at a fixed price, some period of time in the future, within a company.

Employees can generally exercise their share options - ie buy the shares - after a specified period, known as the vesting period. You can make the granting and exercising of share options dependent on reaching certain targets, such as specific sales targets.

When an employee exercises their share options, it's at the price fixed at the date of grant, ie when the options were given to the employee, regardless of the prevailing market price. They can then keep the shares or, if the market price is higher, sell them at a profit.

Share-award schemes

Share-award schemes involve giving employees actual shares rather than share options, free or for less than their market value. The value of shares given to employees is treated as employment income - subject to tax and National Insurance contributions, unless you opt for a HMRC approved share scheme which comes with specific rules and requirements.

Share-purchase schemes

Share-purchase schemes allow employees to:

  • buy shares
  • save money to buy shares
  • buy shares for a small deposit, paying the rest at a later date

When deciding to offer shares, you can choose from a variety of different types, which have different rights. See company shares and shareholders.

Employee share scheme

An employee share scheme can help a company's owners to transfer ownership to those working in the business, eg to family or to enable a management buy-out. You can sell your company gradually and obtain tax relief while doing this. The tax relief available depends on the share scheme, eg deferred capital gains tax on the sale of shares through an HMRC-approved share incentive plan. For further information see tax and Employee Share Schemes.