News & Insight
HMRC confirms that employee share schemes are as attractive as ever
HM Revenue & Customs recently published statistics on the use of employee share schemes (“ESS”) by companies during the 2018/19 tax year (the “Report”).
ESS are used by companies in order to incentivise a workforce by awarding employees with shares or options to purchase shares. These are primarily:
- company share option plans (“CSOPs”);
- share incentive plans (“SIPs”);
- save as you earn plans (“SAYE”); and
- enterprise management incentive schemes (“EMI”).
The key statistics reported by HMRC for the 2018/19 tax year were as now follows.
Income tax (“IT”) and National Insurance Contribution (“NIC”) relief
- Employees have received an estimated total of £870 million in IT and NIC relief in 2018-19 across the four tax-advantaged schemes.
- Of those £870 million, £540 million related to IT relief and the remaining £330 million related to the NIC relief.
- The figures have increased 8% from 2017-18, which is mostly driven by a 32% increase in relief for EMI and a 24% increased in relief for SAYE.
- IT and NIC relief has declined in relation to SIPs, however CSOPs have remained relatively consistent.
- The total relief for ESS has been stable in recent years, EMI has for the first time overtaken SIP as the largest contributor to the total cost of tax relief.
- EMI has both the highest total and average relievable gains for 2018-19.
Companies operating ESS
- 14,420 companies operated tax-advantaged ESS in the UK during the 2018/19 tax year.
- There was an 8% increase compared to the 2017/18 tax year and a 58% increase compared to the 2008-09 tax year.
- The long-term increase since 2008/09 in all tax-advantaged schemes is because of companies offering EMI. The scheme was introduced in 2000 and now 85% of companies operating a scheme only offer EMI.
- The increase over time in EMI schemes probably reflects the fact that under this type of scheme companies can offer total share options up to the value of £250,000 in a three-year period, which is higher than other schemes.
- The number of companies offering other non-EMI schemes has declined by 4% since 2008/09, with much of the decline attributable to the decrease in the number of CSOPs.
- SIP numbers have remained relatively constant.
Combination of schemes
- 99% of all companies offering ESS only operate one type of scheme, with a much smaller number of them running two or three schemes and fewer than ten companies running all four schemes.
- During the 2018-19 tax year, 85% of EMI companies did not operate any other tax-advantaged schemes.
Comparisons between schemes
- SAYE schemes have the highest total value of options granted during the 2018/19 tax year (approx. £1.6bn).
- The average per-person value of SIP shares is low and stands at £220, despite the total value of SIP share awards being greater than the value of EMI and CSOP options granted combined.
- The average amount awarded per employee as regards EMI schemes and CSOPs is higher than for SIP and SAYE schemes. EMI has the highest average (£12,720) – this is due to the higher limits on the maximum amount that can be awarded under the scheme and the scheme can also be offered to select employees (unlike SAYE/SIP which must be offered to all employees).
Number of companies granting and exercising options
- The total number of companies where employees have been granted options or been awarded shares has generally been rising since 2009/10 (although there is a slight decrease in 2018-19 from 2017-18). The total increase is driven by the large rise in the number of companies granting EMI option schemes.
HMRC approved share plans continue to be extremely popular amongst UK corporates and highly valued. The tax relief quoted in the Report provides evidence that companies with such plans have been increasing in value since options tend not to be exercised unless the relevant company has increased in value or achieved an exit. Whether this will be maintained following the COVID crisis remains to be seen.
Comment by Jeremy Glover – Senior Consultant at HLaw
It is noteworthy that EMI share schemes have been the driving force behind the increased adoption of HMRC approved share schemes by companies. UK corporates have widely adopted EMI share schemes as a reliable method of incentivising their respective workforces. It would be a real shame if there was any further reduction in value of the tax relief available for such schemes.
This piece was researched and prepared by Amir Kursun, with input by Jeremy Glover.
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