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A Practical Guide to Incentivising UK Employees Through Tax-Efficient Share SchemesWritten on July 25, 2025 by Kirk Rice LLP

Attracting and retaining talented employees is a priority for any growing business. For foreign-owned companies expanding into the UK, tax-efficient share schemes are a powerful way to align your UK teams with your long-term goals while rewarding them in a meaningful, cost-effective way.

This guide outlines the main options, tax advantages, and practical considerations you’ll need to plan an effective incentive strategy. 

Popular Share Scheme Options in the UK 

Several HMRC-approved share plans can deliver tax benefits to both employers and employees. The most commonly used schemes include: 

• Enterprise Management Incentives (EMI): Designed for smaller, high-growth companies, EMI options allow you to grant shares with significant tax relief. Employees typically pay no Income Tax or NICs on grant and may benefit from reduced Capital Gains Tax on sale. 
• Share Incentive Plans (SIP): Suitable for a broad employee base, SIPs enable companies to offer free shares, partnership shares (purchased by employees), matching shares and dividend shares, all within generous tax-free allowances. 
• Company Share Option Plans (CSOP): Allow options over shares to be granted to selected employees, with no Income Tax or NICs on exercise if conditions are met. 

Selecting the right scheme depends on factors such as your UK subsidiary’s size, the level of participation you want, and future plans for the business. 

Tax Benefits for Employers and Employees 

Approved share schemes offer important tax efficiencies: 

• Employees: Reduced or eliminated Income Tax and National Insurance on acquisition of shares, plus potential for lower Capital Gains Tax when selling shares. 
• Employers: Corporation Tax relief on the difference between market value and exercise price when options are exercised. 

It’s essential to confirm eligibility before implementation, as specific criteria apply to each scheme (for example, EMI is only available to companies with a permanent establishment in the UK and gross assets below £30 million). 

Setting Up Schemes as a Non-UK Parent Company 

If your business is headquartered overseas, there are additional points to consider: 

• Ensure your UK entity has legal authority to grant shares or options over parent company shares. 
• Obtain an independent market valuation to evidence the fair market value of shares at grant. 
• Factor in cross-border employment tax considerations, especially where employees split their time between the UK and other jurisdictions. 

Early planning and advice are strongly recommended to ensure the scheme is structured correctly and delivers the intended benefits. 

Compliance Essentials and Reporting Obligations 

Approved share schemes carry specific reporting duties: 

• Annual returns must be submitted to HMRC by 6 July following the tax year in which options or shares are granted. 
• Accurate records must be kept to evidence compliance with scheme rules. 
• Any variations, cancellations or exercises of options must be reported promptly. 

Failure to meet these requirements could lead to penalties and loss of tax advantages. 

Quick-Reference Checklist to Get Started 

Use this checklist to plan your approach: 

• Identify which share scheme aligns with your business objectives. 
• Confirm your UK subsidiary’s eligibility for approved schemes. 
• Arrange an independent share valuation. 
• Draft clear plan rules and employee communications. 
• Register the scheme with HMRC and set up reporting processes. 

Taking a structured approach will help you build trust with employees and avoid unnecessary tax or compliance risks. 

Next Steps 

Setting up a share scheme can be an effective way to motivate your UK team while enhancing your company’s tax efficiency. If you’d like to explore the options in more detail, contact us via info@kirkrice.co.uk to get started. 

Please note: This article is correct as at the publication date. The answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of relief from taxation are subject to change. The Financial Conduct Authority does not regulate tax planning.