How share schemes can help businesses respond to higher National Insurance costs

Increased employer National Insurance rates and continued wage pressures are forcing many businesses to reconsider how they reward their people. Simply increasing salaries is often unsustainable, yet retaining and motivating talent remains critical. Share incentive schemes provide an alternative way of remunerating staff, giving employees a direct stake in the success of the business while helping employers control payroll costs.

Why share schemes are gaining importance

Salary increases come with an immediate cost for both employers and employees, as every additional pound is also subject to income tax and both employer and employee National Insurance. For many companies, this makes sustained pay rises difficult to manage. Share schemes, by contrast, can tie reward to value creation. They are able to link employee benefit directly to the company’s growth and performance, turning a fixed cost into an incentive-driven arrangement. In addition, when structured within approved frameworks, the tax treatment of certain schemes can still provide meaningful advantages for both sides.

Making share schemes effective as a retention tool

Well-designed share schemes can deliver a double benefit. They help businesses manage costs by reducing reliance on salary increases, while giving employees a genuine sense of ownership and motivation. When people feel invested in the company’s success, morale rises and performance often follows. Choosing the right scheme and structuring it properly is key to achieving these outcomes.

Enterprise Management Incentives (EMI) are often considered the benchmark for small and medium-sized UK businesses, provided the company meets the criteria on size, assets and trade. Company Share Option Plans (CSOP) can be a strong alternative for businesses that do not qualify for EMI, although the limits for individuals are lower. All-employee plans such as Share Incentive Plans (SIPs) and Save As You Earn (SAYE) allow wider participation, while unapproved or growth shares can offer flexibility where approved schemes are not suitable.

To make a scheme work as a retention tool, businesses need to think carefully about design. This includes vesting schedules and performance triggers that encourage people to remain for the long term and drive value; selective allocation to key individuals, and clear communication to ensure employees understand the value on offer.

Key factors leaders need to get right

A share scheme should never be a set and forget exercise. The difference between a plan that motivates people and one that creates problems lies in the detail. Leaders need to start with a clear purpose, choosing the right type of scheme for their company’s size and stage of growth. Valuation and HMRC alignment are also important to avoid unexpected tax consequences. Leaver provisions should be drafted carefully to reduce disputes, and compliance requirements such as filing deadlines must be met (For example, EMI options must be notified to HMRC within 92 days of grant. Missing these windows can invalidate tax advantages). Communication and education are equally important, as employees need to understand how the scheme benefits them in practice.

Common pitfalls include granting options to employees who do not meet eligibility rules, leaving leaver terms vague, or bolting on a scheme at the last minute without considering its impact on existing shareholder arrangements.

Bringing share schemes to life

For a share scheme to succeed, businesses should follow a structured process. This begins with assessing feasibility and designing the right plan, then obtaining a professional valuation and preparing the required documentation. Implementation is the final stage, including granting options, managing vesting, monitoring leavers, and ensuring ongoing compliance with HMRC. Transparent communication throughout is critical to ensure employees value and engage with the scheme.

Speak to our tax team

If you are considering a share scheme for your business, our tax partner Clare Boden can talk you through the options and how they might work in practice. Get in touch with Clare and our tax team today to start the conversation.