A research report, ‘Tax Advantaged Share Schemes 2019’ was commissioned by HMRC on the uptake of Employee Tax Advantaged Share Schemes (ETASS) in order to understand employer, employee and intermediary perceptions about these schemes and their experiences of using them.
The fieldwork involved conducting interviews with 48 employers, 30 employees and five intermediaries (accountants and financial advisers). Participants were sourced from HMRC’s register of employers using ETASS and also the general population.
The specific aims of the research were to:
- Understand what motivates and prevents employers and employees from taking up ETASS.
- Understand how ETASS are communicated and whether this impacts awareness and understanding of these schemes among employers and employees.
- Explore the process of administering ETASS on behalf of employers and employees and consider how this process might be eased.
The research covered the following ETASS: Save As You Earn (SAYE), Share Incentive Plan (SIP), Company Share Option Plan (CSOP) and Enterprise Management Incentive (EMI).
Summary of findings
- ETASS are important tools for recruiting and retaining talented and essential staff, particularly in the financial and technology sectors. They are useful as an alternative or supplementary form of remuneration.
- Employers see SIP, CSOP and EMI as tools to motivate and encourage employees to buy-in to the company and its medium to long-term performance. SAYE is seen as having a limited impact on employee engagement as employees often opt for cash (instead of shares) at the end of the holding period.
- Smaller and micro employers are prevented from taking up ETASS due to issues around affordability and the perception that such schemes are suited to large corporates and concerns around dilution of company share values.
- The attractiveness of ETASS to employees is heavily influenced by their age and the seniority of their job role.
- Younger employees and those in junior positions are generally risk-averse to investing in shares and also less likely to join an ETASS while they are still developing their careers. They lack understanding of ETASS and prioritise saving their money to get onto the property ladder or pay off their mortgage.
- Older employees and those in senior positions are generally financially confident to invest in shares and perceive ETASS as a way to make financial gains and meet long-term financial objectives.
- ETASS are communicated to employers and employees in a variety of ways, including by email, company intranet or online portal, presentations by and discussions with intermediaries and HMRC guidance.
- The type and frequency of communication is influenced by employer size, their budget and whether they used an intermediary for setup and ongoing management.
- Employees often receive limited information about ETASS before joining a particular scheme and do not fully understand the tax implications.
- Employers often find out about ETASS through an intermediary and base decision-making about whether to offer a particular form on their guidance. HMRC ETASS guidance was considered to be comprehensive but too technical to understand.
- Employers using intermediaries benefitted from a much simpler and smoother setup of ETASS and ongoing management in comparison to those managing everything in-house.
- A small to medium-sized intermediary may charge a fee of £5,000 - £10,000 to set up an ETASS. A SIP scheme may cost £8,000-£9,000. An EMI scheme may cost around £5,000. No estimates were provided in respect of SAYE or CSOP.
- A large intermediary may charge a fee of £20,000 - £30,000 for setting up an EMI scheme. No estimates were provided in respect of SAYE, SIP or CSOP.
- There is generally a low level of awareness among employers and employees of the detail of ETASS. Employers are concerned that employees do not fully understand the tax implications if they leave the company, the company is sold or they exercise their share options. Increasing awareness of these schemes is perceived as key to boosting their relevance and appeal.
Suggestions for improvement
Suggestions for improvement include:
- Greater use of case studies and examples in HMRC ETASS guidance to make it more understandable.
- Promotion of ETASS and education of employers by HMRC to increase awareness.
- Educating employees in the workplace and young adults in educational settings about ETASS and the tax implications using simple, jargon-free information.
- The introduction of tax incentives to support smaller employers with the cost of setting up ETASS.
- Making the ETASS rules more flexible (e.g. around the eligible sectors, set-up process, holding periods etc.) to encourage uptake in a wider range of sectors and company sizes.
Links
EMI: Enterprise Management Incentive scheme
The Enterprise Management Incentive (EMI) scheme is an employee share option scheme.
EMI: Enterprise Management Incentives: At a glance
The Enterprise Management Incentive (EMI) scheme is a tax incentivised employee reward scheme which uses share options.
External link
Report: Tax-Advantaged Shares Schemes Research