Share schemes for technology companies: A strategic incentive tool

The UK is a hotbed for ambitious, entrepreneurial and fast-growth technology businesses, creating a tough and competitive environment for attracting and keeping top talent. And with M&A activity in the sector remaining high and exit events creating significant wealth opportunities, equity participation is now a competitive necessity rather than a luxury.

Share schemes address two critical needs in the highly competitive technology employment market – attracting and retaining top talent.

Attracting talent: Top-tier candidates, particularly those with specialised technical skills (data and AI, for example), routinely evaluate equity offerings alongside salary packages. The best talent often has multiple offers and gravitates toward companies providing meaningful equity participation.

Retention through alignment: When employees hold shares or share options, they become stakeholders who can benefit directly from company success. This drives long-term thinking, encourages innovation, promotes cost consciousness, and fosters collaborative cultures where individual success ties to collective achievement.

Employers may be tempted to simply reward mission-critical employees by giving them shares in a business. That is rarely the best move for either party, and can leave those employees with an unexpected and often hefty ‘dry’ tax liability which has to be funded out of existing savings.

However, a carefully implemented share scheme can be both tax efficient and beneficial for the business and its employees.

Approved share schemes: tax-efficient structure

Approved or tax-advantaged share schemes operate under government frameworks providing significant tax advantages for both employers and employees. These schemes encourage employee share ownership through favourable tax treatment. 

Key benefits:

• Employees typically pay Capital Gains Tax rather than Income Tax on gains, resulting in lower tax rates 
• Tax liabilities often only arise upon share disposal rather than at exercise or vesting 
• Employers and employees may avoid National Insurance contributions 
• Companies can often claim Corporation Tax deductions

Common types of approved share schemes include Enterprise Management Incentives (EMI), Share Incentive Plans (SIPs), and Company Share Option Plans (CSOPs). 

Approved schemes require strict compliance with rules regarding eligibility, company size, share values and operational requirements. They may not suit all business structures or employee populations.

Unapproved share schemes: maximum flexibility

Unapproved share schemes offer complete design freedom with fewer regulatory constraints. However, they lack the tax efficiency of approved schemes.

Key advantages: 

• Complete flexibility in structuring vesting periods, performance conditions and exercise terms 
• No regulatory restrictions on company size, employee eligibility or share values 
• Rapid implementation and modification without clearance from HMRC 
• Full customisation to specific business objectives 
• Employees may be able to participate in the profits of the business at an earlier stage

The primary drawback is less favourable tax treatment. Employees typically face Income Tax and potentially National Insurance contributions on benefits received, and employers may not receive tax relief.

Popular structures include unapproved share options, growth shares, phantom shares and restricted share awards.

Making the right choice

The decision between approved and unapproved schemes depends on company size, growth stage, employee demographics and strategic objectives. Many successful technology companies operate hybrid approaches, using approved schemes where possible while supplementing with unapproved arrangements for flexibility.

For technology companies, potential rewards from successful exit events often justify investment in well-designed share schemes regardless of tax implications. The key is ensuring scheme structure aligns with business objectives while providing meaningful employee incentives.

As the technology sector continues evolving, companies implementing thoughtful share schemes position themselves to compete effectively for talent while building cultures where employees are genuinely invested in collective success. In an industry where human capital often represents the most valuable asset, this alignment can differentiate between surviving and thriving in the competitive technology landscape. 

How we can help

We have a specialist share scheme team who will work with you to design and implement a share scheme that meets your strategic goals, ensuring that the scheme is as tax efficient as possible for both the company and the employee. For more information please get in touch.