Giving employees the chance to invest in their company can help an employer improve retention, attract staff and raise funds. For employees, there’s the opportunity to save money in a tax-efficient way.

Here are details of the four government-approved schemes:

Save as you earn - These allow employees to purchase shares in their employer for a set price. This can be up to 20 per cent less than the current share price.

Employees can save up to £500 a month over a set term of either three or five years. The money is deducted through payroll from net earnings so there is not a tax saving at the point of purchase.

Employees have six months from the end of the term to decide whether to get their money back as cash plus interest and a bonus, use their savings to buy the shares or buy the shares and immediately sell them. The tax treatment depends on what the employee chooses to do at the end of the term.

Share incentive plans - There are four ways an employee can receive shares under a share incentive plan (SIP):

1. employers can offer £3,600 of free shares a year

2. employees can buy partnership shares worth 10 per cent of their salary or £1,800 (whichever is lower) a year

3. employers can provide two matching shares for each partnership share

4. employees may be able to use any dividends from their shares to buy more shares

There is no tax or national insurance due on shares that are held in a SIP for at least five years and are free from capital gains tax if they are within a SIP when they are sold.

Company share option plans - These allow employees to buy up to £30,000 of options to acquire shares at a fixed price rather than shares themselves.

There is no tax or national insurance deducted on the difference between how much an employee paid for a share and the value, provided certain conditions are met, but there may be capital gains tax to pay when the shares are sold.

Enterprise management incentives - Companies with assets of £30 million or less may be able to offer enterprise management incentives (EMI) unless they work in ‘excluded activities’ such as farming, banking and property development.

EMIs allow selected employees to buy shares up to £250,000 over a set period, and for the employee there’s no tax or national insurance on the increase in the value of shares, but capital gains tax might be due when the shares are sold.