BIM44010 | Specific deductions: employee share schemes: approved schemes

The Tax advantaged schemes which give favourable tax and NICs treatment to employees and employers are summarised below.

Share Incentive Plans (SIP)

S488-S515, Sch2 Income Tax (Earnings and Pensions) Act 2003

These are share award plans for all employees. Originally known as All Employee Share Ownership Plans (AESOPs), they were renamed SIPs in 2001.

Companies can give up to £3600 worth of ‘free shares’ a year to each employee. Employees can buy up to £1800 worth of shares a year (‘partnership shares’) and companies can reward this commitment by giving up to two ‘matching shares’ for each share an employee buys. A fourth type of share called ‘dividend shares’ can be purchased using money from dividends received in respect of plan shares. A SIP must be operated through a specially constituted trust. Tax advantages include a specific statutory deduction for setting up costs. For guidance on the detailed requirement of the scheme, see etassum20000

Enterprise Management Incentives (EMI)

S527-S541, Sch5 Income Tax (Earnings and Pensions) Act 2003

Under EMI, qualifying companies with gross assets not exceeding £120 million (£30 million if the company is a Specified Company or if the options were granted prior to 6 April 2026) can grant tax-advantaged options over shares worth up to £250,000 (at the date the options are granted) in a 3 year period to each of any number of employees, subject to a total share value of £6 million (£3 million if the company is a Specified Company or if the options were granted prior to 6 April 2026). Tax and NICs advantages apply. Individual EMI options can be granted without setting up a scheme and so there are no specific statutory deductions for setting up costs. For guidance on the detailed requirements of the scheme, see etassum50000

HMRC provides an advance assurance on qualification for EMI, see etassum52020

SAYE option schemes

S516-S520, Sch3 Income Tax (Earnings and Pensions) Act 2003

SAYE (also known as ‘Sharesave’) schemes must be open to all employees and directors. Participants save up to £500 per month to acquire shares by exercising options at the end of a three or five-year period. Tax advantages include specific statutory deductions for setting up costs. SAYE schemes can be operated with or without a trust. For guidance on the detailed requirements of the scheme, see etassum30000.

Company Share Option Plans (CSOP)

S521-S526, Sch4 Income Tax (Earnings and Pensions) Act 2003

CSOP schemes may be open to selected employees. Participants can be granted up to £60,000 (£30,000 prior to 6 April 2023) worth of options in a three-year period. Tax advantages include specific statutory deductions for setting up costs. CSOP schemes can be operated with or without a trust. For guidance on the detailed requirements of the scheme, see etassum40000

Qualifying Employee Share Ownership Trusts (QUESTs)

Sch5 Finance Act 1989

Although specific statutory deductions for contributions to QUESTs were abolished for accounting periods starting on or after 1 January 2003, the statutory deduction for setting up costs continues to be available. In practice it is unlikely that a new QUEST would now be set up.

The legislation for statutory deductions for contributions to QUESTs included provision for a charge to tax to be made if the trustees breached certain specific requirements. The legislation governing the charge remains in force. Although the charge is intended to withdraw, in whole or in part, the relief given to contributing companies, it is imposed on the trustees in the first instance because only they have control over their actions and it would therefore be inappropriate to impose a charge on the contributing companies.