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We support you and your business at every stage with expert advice that delivers outstanding results.

We provide accounting, tax and business advice to individuals, family, and owner-managed businesses from across our offices in Leeds, Manchester, Newcastle and York.

“I think I’ve survived the recession...now how do I retain key staff?"

Nick Davies, Senior Tax Consultant

A workforce who have sat tight through pay freezes (or cuts), short time working, and witnessed friends and colleagues being made redundant, may begin to develop wanderlust, as and when the recovery picks up speed. Business leaders will need to consider ways to “tie in” key people.

How is best to achieve this? Cash is likely to remain tight for some time to come, and in any case research shows that simply increasing cash reward is largely ineffective as a staff retention tool.

One solution could be the introduction of tax advantaged Share Options, and the perfect vehicle for those companies that qualify is the Enterprise Management Incentive Scheme (EMI). In order to qualify for the scheme a company must be independent, have gross assets not exceeding £30million, and have fewer than 250 employees. Certain trading activities are excluded but the vast majority of businesses are able to participate.

EMI Share Options create an opportunity for selected employees to benefit from a percentage of future growth in the value of the business. They are granted options over shares at a predetermined price, and are able to exercise those options at a future date determined by the company. This might be on achieving certain performance targets for example, or very often on the imminent sale of the business. There is no Income Tax or NIC on either the grant or the exercise of the options. The employee will be subject to Capital Gains Tax on the difference between the price they paid for the shares and the disposal proceeds when they come to sell them, but with CGT currently charged at 18%, this represents a huge tax advantage, particularly for Higher Rate taxpayers. In addition, the company may be able to obtain a Corporation Tax deduction for the difference between exercise price and market value.

There is a great amount of flexibility over the design of a scheme. Employers can be selective over who will participate, and the number of options to be granted. The employer also decides on the trigger points and conditions for exercise. Options can be granted over a different class of share, perhaps with no dividend entitlement, or voting rights. Essentially, the existing shareholders are able to ring-fence the current value of the company, enabling selected employees to share only in the future growth in value that they help to deliver.

Share Options can have a powerful motivational appeal, and the tax advantages make them even more attractive. If structured effectively, they can align employee performance with the delivery of shareholder value, but without the tax or practical disadvantages of simply awarding shares.

Nick Davies spent a number of years with HMRC, and has subsequently accumulated over 20 years experience in the accountancy profession. He has been a Senior Manager with both Ernst & Young and Grant Thornton, and has vast experience of advising companies of all sizes on employee-related matters. He advises a number of “blue chip” international groups on Employment Taxation, but is equally happy dealing with SMEs. Nick has particular expertise on the tax efficient re-structuring of car fleets; he is also a regular contributor to many industry publications.

At Garbutt & Elliott we have considerable experience of advising businesses on the design and implementation of EMI Schemes and many other employer solutions. If you would like to discuss how we could add value to your business, please contact Nick Davies, Leeds (0113 2739600), York (01904 464100), or by e-mail to ndavies@garbutt-elliott.co.uk"