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Liz shares success stories at DGIT Event on how she can help you keep and attract key personnel in your business.
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November 2012 Liz Hunter
Share Schemes Retaining & Rewarding your dream Team
Success Story • A wireless payment company wanted to incentivise senior
staff to build shareholder value ahead of an exit.
• In 2006 we implemented a tax-efficient EMI share option scheme for them, with an exercise price of £6.15 per share.
• The company was sold in 2011 for £117 per share.
• Several employees made six figure gains and two employees became millionaires.
Equity – EMI vs. Cash or USOP Options • £150,000 • £42,000 CGT (28%) • £108,000 Net gain • £0 E/er NICs • AND if Entrepreneurs’ Relief
applies it’s 10% tax and net gain re Options is £135,000!
Cash bonus
• £150,000
• £78,000 PAYE (52%)
• £72,000 Net gain
• £20,700 E/er NICs (13.8%)
£150,000 £170,700
Benefits • Feeling of ownership
• Further corporate objectives
• Promotes profit awareness
• Striking tax advantages
• Cash flow advantages
• Engagement of employees
• Succession planning opportunities
• Risk management
Enterprise Management Incentives • UK’s most favoured share scheme
• Flexible individual options
• Share value agreed in advance
• Limit of £250,000 / £3 million (Consider DSPP as top-up plan)
• Qualifying criteria :
- Company : Trade, < 250 employees < £30m gross assets, group structure - Employee : Working time 25hrs / 75% - No material interest (30%)
EMI Tax Treatment
• No tax on grant • Any discount to MV is IT on exercise • Otherwise CGT
• Beware : Entrepreneurs’ Relief : Disqualifying events : EIS position
Timing…
65.8% or 10% tax regime
Other Considerations • Plan limits – top-up plans
• Non-employees – NED, consultant
Standard solution = USOP = high tax
Consider instead:
• Deferred Share Purchase Plan
Leavers • EMI options may lapse
• Good leavers:
- Illness, disability, transfer of employment, retirement, death, redundancy (?)
• For “bad” leavers:
- shares can be forfeit
- options may lapse
• Articles of Association & Shareholder Agreement
‘Shares for Rights’ New Concept: Owner-Employee Contract
Effective from April 2013 (subject to prior consultation which ended 8 Nov.)
Targeted particularly at smaller fast-growth enterprises but businesses of any size would be able to
adopt this new arrangement
Employees sacrifice some of their basic UK employment rights in return for a CGT exempt award of shares
The rights to be exchanged relate to redundancy, the right to request flexible working, time off for training, unfair dismissal, as well as a doubling of the notice of return to work from maternity (cannot waive discrimination rights)
In exchange they can be awarded £2,000 - £50,000 of ownership (shares) in their employer
business. These shares will be exempt from CGT but NOT Income Tax or National Insurance
Contributions.
Employee Communications
• Explanatory literature
• Scheme presentations – pre and post awards
• Email and telephone helpline
• Employee tax support
• Intranet and website
Complete Solutions Scheme design/health check Documentation Trustee services Share capital structure Valuation Resolutions and minutes Employee communications Administration, compliance
Plan Administrators – Why? • Ensure an audit trail of all actions, timely completion and on-going
compliance; • Generate comprehensive reports of plan benefits by company and
employee; • Validate all awards and exercise events; • Track all leavers and joiners; • Manage document production; • Calculate taxable amounts in relation to transactions, ready for
submission to the company’s internal or external PAYE facility; • Generate plan returns, trustee self-assessment returns and trust
accounts where applicable. • Employees and employers are able to access data and make plan
choices on the system via a bespoke plan website.
Thank You