Our website uses cookies to enhance the visitor experience (what's a cookieCookies are small text files that are stored on your computer when you visit a website. They are mainly used as a way of improving the website functionalities or to provide more advanced statistical data.). Are you happy for us to use cookies during your visits?
Please note: continuing without making a choice equates to giving us your consent, which you can withdraw at any time via our cookies policy page.

Giving Shares to Employees

Newsletter Issue - September 2009

Dividends do not carry a NI charge for the paying company or for the recipient. Paying a dividend can thus be more tax efficient than paying a salary, but this can only happen if the employee is also a shareholder in the company. However, it is not that easy to transfer shares into an employee's name without incurring a tax charge.

Where an employee or director receives shares in the company they work for, the value of those shares and any dividends paid on those shares will normally be taxed as part of their salary, unless a number of very strict conditions are met. One exception is where the employee receives shares as part of a family or domestic arrangement, such as a gift between father and son, or between spouses.

This is a very complex piece of law and it has not been fully tested in court. However, the bottom line is HMRC do have the power to tax dividends as salary where tax avoidance has been involved.

If you would like your employees to own a slice of your company, even a very small slice, the best way to award shares in the company is through an approved share scheme, or an approved share option scheme. There are a number of types of approved share schemes, but some are quite complex to set up and administer.

The Enterprise Management Incentive share option scheme is designed for small companies with a balance sheet value of less than £30 million. This scheme allows the company to grant employees options to acquire shares at a particular value, within a set time period. It does not need prior approval from the Tax Office, but you do need to agree a value for the share options. Once the options are granted to the employees the company must tell the Tax Office within 92 days.

If you want to give shares to your employees please discuss this with us first.

  • Auto enrolment icon

    Auto Enrolment

    Workplace pensions rules are changing.
    Be prepared for auto enrolment, see how we
    can help and read up on our guidance notes.

    More

  • Cloud accounting icon

    Cloud Accounting

    With our online bookkeeping packages, our support
    services are only a click away.
    Discover cloud accountancy solutions to bring your finances up to date.
    More

  • Pay less tax icon

    Pay Less Tax

    Our experienced tax advisors can help you
    make the most of your options to reduce
    your tax bills.

    More

  • Make more profit icon

    Make More Profit

    From business plans to management accounts,
    our business services will ensure you are in
    control of your business finances.

    More

  • Source finance icon

    Source Finance

    Our experienced partners can guide you
    in getting the finance you need to make
    your business grow. Read our guides or
    contact us for a free consultation.
    More

  • Outsource your payroll icon

    Outsource Your Payroll

    Let us handle payroll compliance for your
    business. We can deal with HMRC on your
    behalf, and take the stress out of RTI.

    More