HMRC-Approved Schemes and Non-Approved Schemes: A Comprehensive Guide

Published by Mohsin Khan posted in Employee share schemes, Tax Services on January 1, 2025

HMRC-Approved schemes are powerful tools that can significantly impact a company’s success. By providing employees with a stake in the company’s ownership, these schemes can foster a sense of ownership, boost employee morale, and attract top talent.

This guide will delve into the various types of HMRC-Approved schemes, their benefits, and the factors to consider when implementing them. Whether you’re a small business owner or a large corporation, understanding HMRC-Approved schemes can help you create a more engaged and motivated workforce.

HMRC-Approved Schemes

Enterprise Management Incentives (EMI)

Designed specifically for small to medium-sized enterprises (SMEs), the EMI scheme enables companies to grant tax-advantaged share options to employees. As an HMRC-approved scheme, it is particularly beneficial for businesses looking to enhance their HMRC-Approved schemes through attractive incentives.

Eligibility:

To qualify, companies must have fewer than 250 employees and gross assets not exceeding £30 million. Additionally, the company must engage in a qualifying trade, and employees should work at least 25 hours a week or 75% of their working time.

Tax Benefits:

The EMI scheme ensures no income tax or National Insurance Contributions (NICs) on the grant or exercise of options, as long as you grant them at market value. Additionally, Capital Gains Tax (CGT) drops to 10% if you hold the shares for over two years. This substantial tax relief aligns perfectly with tax relief regulations objectives.

Company Share Option Plans (CSOPs)

CSOPs allow companies to grant share options up to a value of £60,000, offering flexibility in HMRC-Approved schemes. This HMRC-approved scheme is particularly advantageous for companies that may not meet EMI requirements but still wish to incentivise employees.

Eligibility:

Grant options at market value and make the scheme available to all employees on similar terms. Ensure compliance with employment law and tax relief regulations to effectively plan HMRC-Approved schemes.

Tax Benefits:

There is no income tax or NICs on the grant or exercise of options if held for at least three years. This tax relief makes CSOPs an appealing option for businesses aiming to reward employees while efficiently managing HMRC-Approved schemes.

Share Incentive Plans (SIPs)

SIPs allow companies to grant shares directly to employees, including free shares, partnership shares, matching shares, and dividend shares. As an HMRC-approved scheme, SIPs drive broad-based ownership and encourage active participation in HMRC-Approved schemes.

Eligibility:

The scheme must be offered to all employees on similar terms. This requirement ensures compliance with employment law and promotes a sense of shared ownership across the workforce.

Tax Benefits:

Employees face no income tax or NICs on shares if held within the plan for at least five years. Moreover, CGT is avoided on disposal if shares remain within the SIP. These tax benefits provide substantial tax relief and support long-term tax relief regulations.

Save As You Earn (SAYE)

SAYE allows employees to save monthly from their salary and then use the accumulated savings to buy shares at a discounted price after a three- or five-year period. As an HMRC-approved scheme, SAYE serves as a practical tool to engage employees through HMRC-Approved schemes.

Eligibility:

The scheme is available to all employees who meet the minimum service requirement, thus promoting inclusivity and compliance with employment law.

Tax Benefits:

Employees do not incur income tax or NICs on the discounted price if options are exercised after the savings period. This makes SAYE an appealing option for long-term HMRC-Approved schemes.

Non-Approved Schemes

Growth Shares

Growth shares are issued at a hurdle price and gain value only if the company’s value exceeds a predetermined threshold. This innovative approach aligns employee incentives with company performance, enhancing the effectiveness of HMRC-Approved schemes.

Example:

Employees receive shares valued at £1 million and benefit only if the company’s value surpasses this amount. This structure effectively supports tax relief regulations by linking rewards to company growth.

Restricted Stock Units (RSUs)

RSUs are company shares granted to employees with conditions such as vesting over time or achieving performance goals. This method proves effective in retaining talent and aligns well with HMRC-Approved schemes objectives.

Example:

An employee is granted 1,000 RSUs that vest over four years. They receive 250 shares each year, encouraging long-term commitment and performance.

Employee-Owned Trusts (EOTs)

EOTs hold a significant ownership stake on behalf of employees, fostering long-term ownership and engagement. This approach not only aligns with employment law but also enhances HMRC-Approved schemes.

Example: 

A company sells 51% of its shares to an EOT, benefiting employees from profit-sharing and giving them a say in company decisions. This structure supports a collaborative culture and aids in tax relief regulations.

Worked Example: Combining Schemes

A medium-sized tech company implements a combination of EMI and SIP schemes. Senior developers receive EMI options, encouraging their long-term contributions, while all employees are offered SIPs, receiving free and matching shares. This dual approach enhances HMRC-Approved schemes by retaining top talent and motivating the entire workforce.

Comprehensive Share Scheme Compliance UK

To maximise your company’s potential, consider integrating Share Scheme Compliance into your strategy. Whether your goals are to attract talent, retain key employees, or motivate your team, Apex Accountants is here to assist. We specialise in tax relief regulations, HMRC-Approved schemes tax relief, and comprehensive Share Scheme Compliance support.

Our team of Share Scheme Compliance specialists UK ensures that you navigate both HMRC-Approved and non-approved schemes effectively. By consulting with us, you can explore the best options for your company’s success and ensure compliance with all relevant regulations. For expert guidance and tailored solutions, contact us today.

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