Share Schemes

What Are Your Options for Incentivising Employees?

Attracting and retaining top talent is more competitive than ever. Offering equity in your business - through share schemes - can be a powerful incentive that aligns your team’s goals with your company’s success.

There are several ways to offer shares to employees, including:

• Enterprise Management Incentive (EMI) schemes - the most tax-advantageous for qualifying companies.
• Growth shares - ideal for rewarding future performance while protecting current ownership.
• Unapproved options - flexible but less tax-efficient.

Each share scheme has its own benefits and compliance requirements. The key is choosing the right fit for your goals and structure.

What Is an EMI Scheme?

The Enterprise Management Incentive (EMI) scheme is a government-backed share option plan designed for SMEs. It allows companies to offer equity to selected employees in a highly tax-efficient way.

Eligible businesses can grant employees the option to buy shares in the future at today’s price - often significantly lower than the value at exit.

EMI schemes are ideal for:

• High-growth SMEs looking to reward and retain key staff
• Companies planning a future sale or exit
• Businesses wanting a flexible and HMRC-approved incentive

What Are Growth Shares?

Growth shares are a powerful alternative to traditional equity. They allow employees or investors to benefit only from the future growth of the business - above a pre-agreed threshold - protecting current shareholders from dilution on existing value.

They are ideal for:

• Rewarding performance: Recipients only benefit if the company’s value increases.
• Preserving control: Existing owners maintain value in the business up to the hurdle rate.
• Exit planning: Growth shares are popular in businesses preparing for a sale or investment round.

Growth shares are especially useful where EMI schemes are not available, or where broader flexibility in share rights is needed.

While they offer great commercial advantages, growth shares must be carefully structured to ensure tax efficiency and avoid unexpected liabilities.

Benefits of an EMI Scheme

The advantages of setting up an EMI scheme are significant - for both employers and employees:

Tax efficiency - Employees typically pay just 10% Capital Gains Tax (CGT) on any increase in share value. No Income Tax or National Insurance is due on grant or exercise if conditions are met.

Attract & retain talent - Offering equity helps you compete with larger firms, foster loyalty, and reduce employee turnover.

Business growth - Team members with a stake in your success are more likely to drive performance and innovation.

Customisable & flexible - EMI options can be tailored around your team, business goals, and future plans.

Valuation certainty - With HMRC-approved valuations, you can fix the share price at today’s value - crucial for tax planning.

Flexibility - It is possible to combine an EMI scheme with growth shares and offer employees options over growth shares.

What Can Go Wrong?

While EMI schemes and growth shares offer excellent benefits, there are common pitfalls to be aware of:

Eligibility rules - Not all companies or employees qualify for EMI. Growth shares must also be structured carefully to avoid missteps.

Incorrect documentation - Errors in share agreements, option terms, or valuation processes can invalidate tax reliefs.

Late filings - For EMI, HMRC must be notified of the grant of the option by 6 July following the end of the tax year of the grant. Missing this window can remove tax advantages.

Lack of clarity - Poorly communicated schemes can lead to confusion or disputes - especially around share value, voting rights, or exit events.

A well-structured scheme requires expert guidance - from initial setup to legal drafting and compliance.

How We Can Help

At Lumina by Ad Valorem, we specialise in designing and implementing share schemes for ambitious SMEs. We help you:

• Evaluate options between EMI, growth shares, or other equity plans
• Navigate HMRC rules and eligibility
• Manage valuations, and HMRC reporting requirements.
• Work with solicitors in respect of the preparation of legal documentation.
• Ensure correct and timely reporting
• Communicate effectively with your team

Whether you’re looking to retain key staff, plan for exit, or incentivise performance, our share scheme specialists are here to support you.

Let’s build a bespoke solution that drives performance and protects your tax position.