BIM44010 - Specific deductions - employee share schemes: Approved schemes
The approved schemes which give favourable tax and NICs treatment to employees and employers are summarised below.
Share Incentive Plans (SIP)
These are share award plans for all employees introduced by FA00/SCH8, (now ITEPA03/S488 and ITEPA03/SCH2). Originally known as All Employee Share Ownership Plans (AESOPs), they were renamed SIPs in 2001.
Companies can give up to £3000 worth of “free shares” a year to each employee. Employees can buy up to £1500 worth of shares a year (“partnership shares”) and companies can reward this commitment by giving up to 2 “matching shares” for each share an employee buys. A fourth type of share called “dividend shares” can be purchased using money from dividends received in respect of plan shares.
Enterprise Management Incentives (EMI)
Under EMI companies with gross assets not exceeding £30 million can grant tax advantaged options over shares worth up to £100,000 (at the date the options are granted) to each of any number of employees, subject to a total share value of £3m. Tax and NICs advantages are given by ITEPA03/S527 and ITEPA03/SCH5 (previously FA00/SCH14). Individual EMI options can be granted without setting up a scheme and so there are no specific statutory deductions for setting up costs.
The corporation tax affairs of companies offering EMI options are dealt with by Small Companies Enterprise Centres (SCECs) or, if the company is also a pharmaceutical company, by the relevant Pharma Sector area office.
Savings-related share option schemes (SAYE)
SAYE (also known as ‘Sharesave’) schemes must be open to all employees and directors, and are approved under ITEPA03/S516 and ITEPA03/SCH3 (previously ICTA/SCH9). Participants save up to £250 per month to acquire shares by exercising options at the end of a 3, 5 or 7 year period. Tax advantages include specific statutory deductions for setting up costs. SAYE schemes can be operated with or without a trust. A qualifying employee share ownership trust (QUEST) may be used in conjunction with a SAYE scheme, but this is not a requirement.
Company Share Option Plans (CSOP)
CSOP schemes may be open to selected employees, and are approved under ITEPA03/S521 and ITEPA03/SCH4 (previously ICTA88/SCH9). Participants can be granted up to £30,000 worth of options in a three year period. Tax advantages include specific statutory deductions for setting up costs. CSOP schemes can be operated with or without a trust. A qualifying employee share ownership trust (QUEST) cannot be used in conjunction with a CSOP scheme.
Approved Profit Sharing schemes (APS)
These share award schemes for all employees were approved by HMRC under ICTA88/SCH9. Awards of shares under existing schemes could be made until the end of December 2002. No new schemes have been approved since April 2001. SIP schemes effectively replaced APS. Tax advantages for the employer included specific statutory deductions for setting up costs and for contributions to scheme trusts.
Qualifying Employee Share Ownership Trusts (QUESTs)
For accounting periods starting before 1 January 2003 favourable tax treatment is also given to the use of a trust which is a qualifying employee share ownership trust (QUEST) under FA89/SCH5. QUESTs may be used in conjunction with some types of approved schemes and more rarely with unapproved schemes.
