There are various ways for employees to obtain shares, including:

1. Direct Share Awards

This approach would see certain employees acquire an immediate shareholding in the company. They would be taxed by reference to the current market value of the shares. This approach is the easiest to set up but can result in immediate tax liabilities for the employee.

2. Unapproved Share Options

This is essentially an option agreement giving an employee the right to acquire shares, which is sometimes subject to a specific future event, such as a company sale. Payment for the shares and tax liabilities are deferred until the options are exercised, at which point the employee is then assessed to income tax by reference to the market value of the shares at that time, less any amounts paid for them.

3. Enterprise Management Incentive (EMI) Share Options

This is a form of share option which is part of a HMRC-approved scheme offering tax advantages for the employee and the employer. There are specific qualifying conditions which must be met, for example the company must be a trading company and have fewer than 250 full time employees.

One benefit to an EMI scheme is the employer can pre-agree a value with HMRC, to give certainty on the tax treatment. Provided the employee pays at least the grant date market value for their shares when they exercise, they suffer no income tax. Instead, they pay capital gains tax when they sell their shares (and if there has been at least two years between the grant date and sale date, then potentially their gain will qualify for the lower ‘business asset disposal relief’ rate of 14% - increasing to 18% from April 2026).

4. Nil Paid Share Allotments

This is a variation on the direct award of shares which can also be combined with an option. The employee will agree to pay the market value of the shares, but will not physically pay that price at the point of issue. Instead, it is left as owed to the company. In theory, this avoids an income tax liability for the employee, however there isn’t an opportunity to pre-agree a value with HMRC like there is with EMI options.

5. Growth Shares

This is a way of protecting all or some of the current value of the business by offering “growth” shares to employees. These are a special class of share which are only entitled to future capital growth (whereas the existing shareholders will be entitled to the current capital value they have built to date). These shares can be offered with a lower starting value than ordinary shares (as they are only entitled to future capital growth), so the employee has a lower amount to pay for the acquisition. However, these shares are less lucrative for the employee than normal shares.

Implementing an employee share scheme is a technical and complex process. We can assist with advising you on the most appropriate route for your business, prepare share valuations to ascertain the tax liabilities/exercise prices for options, and work with you to implement the chosen scheme.