Share awards and long-term incentive plans

Produced by Tolley in association with

Employment Tax

Guidance

In some cases, a company may wish to make outright share awards to its employees rather than granting options.

Long-term incentive plans

One common example is the award of shares under a long-term incentive plan (LTIP) or performance share plan. Under these plans, employees receive contingent awards of shares ― either via a share option or a restricted share award ― and where demanding performance targets are met, often after a three-year measurement period, the shares are awarded at no cost to the employee. This type of arrangement is commonly used by listed companies but may be used by any company.

However, for an unlisted company, consideration should be given to how the income tax and NIC costs will be funded by the employee if there is no market for the shares. This is known as a ‘dry tax charge’, see Simon’s Taxes C1.311 and C6.119 for discussion of ‘dry tax charges’ generally.

There are two significant issues in making a share award at nil cost:

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Helen Wood

Founder, HLN WD TX , Employment Tax

Helen Wood is the founder of HLN WD TX, a share schemes and employee incentives advisory business.She qualified as a CA with ICAS in 2009 and has worked as a specialist reward and incentives advisor for 17 years, spending 13 of those at KPMG followed by 3 ½ years as an Associate Director at RSM. Helen has worked with businesses ranging from start-ups to fully listed companies, spanning owner-managed businesses, private equity portfolio companies, and AIM listed businesses.She advises on a wide range of employee share schemes and employment related securities matters including the design and implementation of effective management and employee incentives; tax valuation of employment related securities, buy and sell side transaction support, HMRC compliance, tax due diligence and employee ownership trust transactions.

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