In this section:
- Tax for the employed
- Tax for the self-employed
- Work out if you're employed or self-employed
- Starting your first job: what to do about tax
- Tax on casual, part-time or temporary work
- PAYE forms: P45, P46, P60, P11D
- Tax on company cars and other benefits
- Tax on employee share schemes
- Tax on tips and bonuses
- Tax when employing people in your home
Tax on employee share schemes
If your employer offers you shares in their company as part of a government approved share scheme you get certain tax advantages. Approved schemes are: Share Incentive Plans, Save As You Earn schemes, Company Share Option Plans and Enterprise Management Incentive schemes.
Share Incentive Plans (SIPs)
If you get shares under one or more SIPs and keep them in the plan for five years you will not pay Income Tax or National Insurance contributions (NICs) on their value when you acquire them. (Employers normally have to deduct this from the value of benefits they give you).
You also won't pay any Capital Gains Tax (CGT) if you keep them in the plan until you sell them. If you keep the shares after you take them out of the plan you will only pay CGT - if due - on any increase in value between when you take them out and when you sell them.
If you take SIP shares out of trust early, you will pay Income Tax and NICs - the amount depending on when you take them out.
There are four different SIPs schemes:
Free shares
Your employer can give you up to £3,000 worth of free shares in any tax year. They may be linked to:
- individual or team performance
- length of time with the business
- level of pay
- hours worked
Partnership shares
Under this SIP you can buy shares out of your salary before deduction of Income Tax and NICs - meaning you save on both. You can spend up to ten per cent of your income or £1,500 in any tax year on partnership shares.
Matching shares
Your employer can give you up to two free partnership shares for each one you buy.
Dividend shares
If you receive dividends from any of the shares you hold above, you won't have to pay Income Tax on them if you re-invest them in the company and keep the shares for at least three years. You can invest up to £1,500 worth of dividends each tax year in this way.
Save As You Earn (SAYE)
An approved SAYE scheme is a savings related scheme that your employer sets up. It must be available to all employees who've been with the company for a certain time. The scheme gives you a right - known as a 'share option' - to buy shares with your SAYE savings for a price that's fixed at the start.
You can save up to £250 a month into the scheme out of your take-home pay. At the end of your savings contract (three to five - or sometimes seven - years) you can use the savings to buy the shares.
Tax advantages of approved SAYE schemes
The interest and any bonus at the end of your savings scheme is tax free - unless you cash it in early.
Also you don't pay any Income Tax and NICs on the difference between what you pay for the shares when you use your option and what they're actually worth. Income Tax and NICs are due on this difference with non-approved schemes.
Tax when you sell the shares
You may have to pay CGT when you sell the shares. But you won't pay any if you put the shares into an ISA as soon as you buy them.
Tax rules for SAYE schemes (PDF 96K)
Company Share Option Plan (CSOP)
An approved CSOP scheme gives you a right (or 'option') to buy up to £30,000 worth of shares at a fixed price at a particular time. Your employer can choose who to offer the option to - but you won't be eligible if you already own more than 25 per cent of the shares of a company that's controlled by under five people - or by its directors.
Tax advantages
You won't pay Income Tax and NICs on your option or when you get your shares if the scheme is approved and you stick to the rules.
Tax when you sell the shares
You may have to pay CGT when you sell the shares.
Enterprise Management Incentives (EMI)
If you work for a company that's got assets of up to £30 million, it can offer you an option to buy shares worth up to £120,000 without you having to pay Income Tax or NICs.
You may have to pay CGT when you sell the shares.
Enterprise Management Incentive schemes - learn more
Are there any disadvantages of joining an approved scheme?
If you join a scheme, some possible disadvantages are:
- you may have less money to spend
- you might have to stay with the company longer than you would like so you don't lose your tax advantages
- your future financial security will depend on how well the company does
Read about possible disadvantages of employee share ownership schemes on the Business Link website
Find out about share incentive plans and your entitlement to benefits (PDF 107K)
Tax rules for other employee share schemes
Not all employee share schemes are approved by the government - and those that aren't don't have the same tax advantages.
With an unapproved scheme you'll pay:
- Income Tax and NICs when you use the option to buy shares for less than their value
- CGT - if due - based on the price you paid for the shares when they were issued to you
Shares and share options without tax and NICs advantages
More useful links
Find out more about share schemes
Self Assessment help notes - CGT and exercise of share options (PDF 65K)
Self Assessment help notes - filling in share scheme pages (PDF 92K)
