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Approaching the Final Year of the KEEP Scheme
By Sinéad Floody FCG, 28th November 2024
Employee engagement is a critical driver of success in any organisation. To foster this, businesses often look for ways to incentivise their teams and ensure they feel invested in the company’s growth. One such initiative is the Key Employee Engagement Programme (KEEP) which is a tax-efficient share option scheme introduced to reward and retain key employees.
In this blog we will go through an overview of the scheme, its benefits, and the conditions employees and companies must meet to participate.
What is KEEP?
KEEP is a government-backed initiative that allows qualifying employees to acquire shares in their employer company at a fixed price, at a future date. It is a highly attractive proposition as it provides employees with the opportunity to benefit from any increase in the company’s share value, without facing an immediate tax liability when they exercise their options.
The scheme applies to share options granted between 1st January 2018 and 31st December 2025, making it a limited-time opportunity for both employees and companies to take advantage of.
The Key Benefits of KEEP
Tax Efficiency: The most significant advantage of KEEP is the tax exemption on gains made when employees exercise their options. Typically, employees would pay tax on the difference between the price at which they exercise the option and the market value of the shares. However, with KEEP, this gain is exempt from Income Tax, Universal Social Charge (USC), and Pay Related Social Insurance (PRSI) at the time of exercise. This is a major financial advantage, particularly when the company’s shares have significantly appreciated in value.
Attractive to Employees: Employees have the potential to benefit from the growth of the company, which can foster loyalty and encourage long-term commitment. They are essentially becoming part-owners of the business, which is a powerful motivator for engagement and performance.
How to Qualify for KEEP
For both employees and companies, specific criteria must be met to ensure eligibility for the tax benefits offered under KEEP:
Timing of Share Option Grants: To qualify, the share options must be granted between 1st January 2018 and 31st December 2025. This timeframe is crucial, as it defines the duration during which companies can offer these tax-efficient share options.
Exercising the Options: There are restrictions on when employees can exercise the options. The options cannot be held for more than ten years, and they cannot be exercised within the first 12 months from the grant date.
Employee Criteria: To benefit from the scheme, employees must work a minimum of 20 hours per week for the company. Additionally, they must not hold a material interest (defined as owning more than 15%) in the company.
Company Eligibility: The company offering the scheme must be a qualifying small or medium-sized enterprise (SME). This means the company must meet certain size thresholds in terms of turnover and employees, and it must be based in the European Economic Area (EEA).
Tax Implications
While KEEP offers employees a tax-efficient way to benefit from the company’s success, there are still some important tax considerations:
Gains on Exercising Options: As mentioned, employees will not be taxed when they exercise their KEEP options. This includes exemptions from Income Tax, USC, and PRSI.
Capital Gains Tax (CGT): If the employee decides to sell or dispose of the shares after exercising the options, any increase in the share value between the exercise date and the sale date will be subject to Capital Gains Tax (CGT). This tax is applicable on the capital gain made upon disposal and must be reported to Revenue.
Encouraging Long-Term Employee Commitment
By offering employees the chance to own part of the business, the KEEP programme aligns the interests of the workforce with those of the company. It encourages employees to think like owners, fostering a sense of responsibility and a long-term investment in the company’s success. Additionally, by offering tax advantages, the scheme helps to make employee compensation more competitive.
In Summary
The KEEP scheme is a win-win for both employees and employers. Employees gain the opportunity to share in the financial success of the company through tax-efficient share options, while the employers benefit from improved employee retention and motivation. However, it’s important that both companies and employees are aware of the eligibility requirements and conditions attached to the scheme.
If you’re an employer looking to incentivise your team or an employee considering participating, KEEP can provide a powerful financial incentive to drive engagement, loyalty, and long-term success. Make sure to consult with a tax advisor to understand the full scope of the scheme and its tax implications.
If you have any additional questions regarding the Keep Scheme or how your business may benefit from it, do not hesitate to contact the Company Bureau team! Give us a call at +353(0)1 6461625 or fill out our online contact form.
Disclaimer: This article is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Company Bureau for any action taken or not taken in reliance on the information set out in this article. Professional or legal advice should be obtained before taking or refraining from any action as a result of this article. Any and all information is subject to change.
