In a competitive hiring market, we have noticed that businesses of all sizes are turning to employee share schemes to attract, motivate and retain key staff. With salary budgets under pressure and employers facing higher NIC costs in 2025, share incentives are becoming an essential part of employee compensation packages.
Choosing the right scheme is not always straightforward. EMI, Growth Shares and CSOP each carry different tax outcomes, costs, administrative burdens and suitability criteria. We thought it might be helpful to outline some of the key differences to make this as straight forward as possible for our clients.
Why Share Schemes Matter
Recruitment costs are rising, high-growth sectors are competing for scarce talent and staff are increasingly focused on long-term upside. A well-designed share plan can help a business:
- reward high performers
- support cash flow by reducing pressure on salaries
- align employee behaviour with company value
- improve retention
- enhance exit readiness
With HMRC tightening scrutiny around valuations and compliance, careful planning is essential.
Enterprise Management Incentives (EMI)
EMI remains the most tax efficient and flexible option for small and medium sized companies engaged in qualifying trades.
Key features:
- Highly favourable tax treatment
- No income tax or NIC on exercise if the strike price is set at market value
- Gains on sale taxed as capital gains
- Potential access to Business Asset Disposal Relief giving a reduced rate of Capital Gains Tax
- Flexible vesting and performance conditions
Best suited for:
- Growing companies looking to incentivise key employees
- Tech, digital, engineering and other knowledge rich sectors
- Businesses expecting significant growth or a future exit
Watch out for:
- EMI qualifying criteria
- The need for an up to date share valuation
- The 90 day rule following HMRC valuation clearance
- Record-keeping and annual notifications
EMI is often the first choice for eligible companies due to its tax efficiency and flexibility, but the options need to be considered carefully to ensure the scheme is available.
Growth Shares
Growth Shares are not a statutory scheme. They are a class of shares with restricted rights that only benefit from value created above a hurdle. They are commonly used where EMI is not available, for example in larger companies or non-qualifying companies such as those controlled by other companies or non-qualifying trades such as solicitors.
Key features
- Low initial market value
- Value only accrues above a set hurdle
- Gains usually taxed as capital gains
- Can be used for senior hires, even in large companies
- Fully flexible design
Best suited for:
- Companies that are too large or do not qualify for EMI
- Businesses preparing for a sale or investment round
Watch out for:
- Getting the share valuation right is essential
- Tax on acquisition if undervalued
- Articles and shareholder agreements need careful drafting
Growth Shares can replicate EMI style incentives where EMI is not available.
Company Share Option Plan (CSOP)
CSOP has become more useful following recent reforms. It is a statutory scheme but with fewer tax benefits than EMI.
Key features:
- Options up to £60,000 per employee
- No income tax or NIC on exercise if held for 3 years
- Capital gains treatment on sale
- Fewer eligibility restrictions than EMI
Best suited for:
- Larger companies
- Groups that want a simple, low admin scheme
- Businesses that cannot issue Growth Shares due to corporate structure
Watch out for:
- Less tax efficient than EMI
- Three year holding period requirement
- Option limits can be restrictive for senior hires
Which Scheme Should You Choose
If your/your client’s company qualifies for EMI, it is often the best option. Because of that, the rules are easy to breach and careful consideration needs to be given both before the scheme exists and whilst the scheme is running.
If a company does not qualify or need to incentivise senior people, Growth Shares can be a good choice subject to the facts of the situation.
If you want a statutory scheme with lower admin and simpler rules, CSOP may be suitable.
A hybrid strategy is also common, for example EMI for key staff and Growth Shares for senior hires who exceed EMI limits.
Conclusion
Share incentives are powerful tools when used correctly, but the tax and valuation rules are complex and extensive. HMRC scrutiny has increased across all employee share schemes during recent years so early planning, clear documentation and robust valuations are critical.
If your clients’ businesses are considering implementing a share scheme or reviewing an existing one, please do give us a call to run through the best option for them.