The most tax effective incentive arrangement for management teams and employees of fast growth UK companies is an enterprise management incentive (EMI) scheme, under which EMI options may be granted.
For companies that qualify, most employees will be able to be granted share options that have fantastic tax breaks – e.g. no income tax or NICs on exercise, automatic business asset disposal relief from capital gains tax (provided at least two years have passed since the relevant option grant) bringing the effective tax rate down to 10% and corporation tax relief for the employer company. Essentially you can get HMRC to pay for your employees’ incentives. This is not avoidance, rather this is a Government sponsored tax incentive to drive entrepreneurial activity in the UK.
It is verging on negligence not to have an EMI scheme in place if the qualifying conditions are met.
Some companies cannot award EMI options and some people cannot benefit from EMI. In such cases, it is sometimes possible to create other types of arrangements which have some of the tax benefits (although not all of them).