If you’ve recently established your business in the UK, one way to attract and retain top talent is by offering a share scheme. This allows employees to own a stake in your business, aligning their interests with your company’s growth and long-term success.
We often get asked how to set one up in the UK and what you need to know as a newly incorporated company?
Why Offer a Share Scheme?
For overseas businesses expanding into the UK, the job market can be highly competitive. Offering equity can help:
- Attract experienced hires who are motivated by ownership potential
- Retain key staff with a vested interest in your success
- Align incentives between employees and shareholders
- Provide tax-efficient rewards (with the right scheme)
In fact, HMRC’s own data shows that over 14,000 UK companies operate tax-advantaged share schemes, demonstrating their popularity as part of competitive employment packages.
Step 1: Choose the Right Type of Scheme
The UK offers several types of share schemes, broadly divided into:
1. HMRC-approved (tax-advantaged) schemes
These provide potential tax benefits for both employees and employers. Examples include:
- Enterprise Management Incentives (EMI) – Designed for small to medium-sized companies with gross assets under £30 million, EMI is one of the most flexible and tax-efficient options.
- Company Share Option Plans (CSOP) – Available to larger companies, allowing employees to purchase shares at a fixed price in the future.
- Share Incentive Plans (SIP) – Enables companies to give free shares, match employee share purchases, or offer partnership shares with tax advantages.
2. Unapproved schemes
These don’t have the same tax benefits but can be more flexible, allowing tailored arrangements for senior hires or overseas staff.
Step 2: Check Eligibility and Conditions
Each scheme has specific eligibility requirements. For example, EMI schemes can only be offered by companies with fewer than 250 full-time employees, and employees must work at least 25 hours per week (or 75% of their working time) for the company with gross assets less than £30m. Your company must also have the correct corporate structure. As an overseas business, you’ll need to ensure your UK entity is structured appropriately, whether as a subsidiary or standalone UK company, to meet HMRC rules.
Step 3: Design the Scheme
Consider:
- Who will be eligible – all employees or just key team members?
- Vesting periods – how long employees must wait before shares or options are theirs
- Performance conditions – targets employees must meet
- Exit provisions – what happens if an employee leaves or the company is sold
Step 4: Get a Valuation
For HMRC-approved schemes, you’ll need to agree the market value of shares with HMRC before granting options. This ensures any tax advantages are preserved and avoids disputes later.
Step 5: Draft Legal docs
Ensure that you draft legal documents such as:
- Share option agreement
- Scheme rules
- Board resolutions
- Board/ shareholder approval
Step 6: Register and Report to HMRC
You must register the scheme with HMRC via their Employment Related Securities (ERS) service, typically within 92 days of granting options. Annual returns are also required to stay compliant.
Step 7: Communicate Clearly with Employees
A share scheme can be a powerful motivator but only if employees understand it. Provide clear documentation explaining how it works, the benefits, and any potential risks.
Expert Support for Your UK Expansion
Setting up a share scheme as part of your UK operation can be a strategic move to attract talent and foster loyalty. At Paul Beare, we help overseas companies choose, structure, and administer share schemes that comply with UK law and HMRC requirements, ensuring a smooth setup and ongoing compliance.
If you’re expanding into the UK and want to explore your options, our team can guide you through the process from start to finish – get in touch today.