Tax Planning Ideas for Employee Rewards

Employee Package Rewards

Employee incentives such as bonuses, non-cash benefits such as private medical insurance, and pension contributions can be a good way of rewarding and incentivising staff. Some are more tax efficient than others, and the right package can lead to improved retention and incentivisation of key staff. There are several tax-free benefits such as mobile phones and pension salary exchange arrangements which can motivate staff. In addition, ‘trivial benefits’, such as non-cash vouchers worth £50 or less, can be given to employees tax-free, providing they are not a reward for service.

Enterprise Management Incentive scheme – provide future shares for employees dependent on the performance

EMI is a HMRC-approved employee share scheme. It is available to most SME trading companies and allows employers to tax efficiently and allow key employees to acquire shares in the future that can be dependent on performance and other criteria (such as the company being sold). The benefit of this is that the employee knows they can obtain shares in the future if they stay with the company and achieve certain targets, and the business owner knows they won’t have to give up any equity unless the employee stays in the business and, the performance conditions are met. This can be a useful way of allowing key employees to share in a sale of the company in a tax-efficient manner.

Company Share Option Plan (CSOP) – reward employees with equity options

A CSOP is a tax-advantaged discretionary share option plan under which a company may grant share options of up to £30,000 to any employee or full-time director. It is more flexible than an EMI Scheme, as there are no limits on company size or the number of employees, so a CSOP can be used by larger companies, listed organisations, and those whose trade excludes them from implementing an EMI (such as property development or leasing businesses).