EMI is a share scheme that companies can implement to provide their employees with significant tax benefits, thereby improving recruitment and retention. BSR Bespoke chartered accountants can help with putting in place an EMI scheme for your company.
What is the Enterprise Management Incentive (EMI) tax and employee share option scheme?
EMI schemes come with various tax advantages and provide a range of benefits for both employers and employees. By offering employees the opportunity to acquire shares in the company, the EMI scheme serves as an effective tool for incentivising and rewarding staff members. It not only enables employees to become shareholders but also aligns their interests with the company's success. It promotes a sense of ownership, loyalty, and commitment among the workforce, ultimately fostering a more productive and engaged team. Overall, the EMI share option scheme stands out as one of the most flexible and beneficial methods for motivating and retaining valuable staff members.
What are the main features of EMI schemes?
- Up to £250,000 worth of shares can be granted to each individual.
- The limit on the total value of options that can be granted under EMI is £3 million.
- Generally, no income tax or national insurance contributions (NIC) liabilities arise on grant or exercise of market value options.
- Capital gains tax (CGT) at 20% will be payable on the sale of the shares unless the option has been held for 24 months, in which case there will be a qualification for Business Asset Disposal Relief at a 10% tax rate.
- The market value of the shares is agreed upon in advance with HMRC.
- Provided conditions are met, a corporation tax deduction should be available to the employing company in the period in which the employee exercises the share option.
What are the financial costs and benefits of EMI schemes?
Share options granted as part of an EMI scheme are valued at the market value at the option date for the employee, though they can be offered at a discount, meaning they have a potential upside if the value of the shares increases over time.
The tax benefits of EMI can be beneficial to both the employer and the employee. For example, if the exercise price is the market value when options are granted, employees will not have to pay any income tax or National Insurance Contributions (NICs) on the exercise of the option, even if the market value is higher at the time of exercise. This makes EMI a valuable option for businesses looking to reward and retain valued members of staff.
Which businesses are permitted to offer EMIs?
EMI is available to quoted and unquoted companies with gross assets of £30m or less. A company granting EMI options must not be under the control of another company. However, the parent company of a qualifying group can grant EMI options to group employees. The business must have fewer than 250 full-time equivalent employees and employees must work at least 25 hours a week, or 75% of their total working time, for the company.
Companies that work in ‘excluded activities’ are not allowed to offer EMIs. Some of these are:
- banking
- farming
- leasing
- property development
- provision of legal services
- shipbuilding
The experienced team of advisers at BSR Bespoke can explain in detail which trades qualify and whether your company is eligible.
Are there any employee exclusions?
The EMI scheme is subject to various exclusions regarding employees. These include employees who already own more than 30% of the issued share capital in the employing company or a related company, as well as those whose employment duties are mainly outside of the UK, amongst other restrictions. It is important to note that any employee who does not meet the eligibility criteria for the EMI scheme will not be able to benefit from its tax advantages.
How can BSR Bespoke put in place an EMI scheme for your company?
Setting up an EMI scheme requires specialist knowledge, and the process can be complex and time-consuming for businesses. Our expert team of chartered accountants can put together a bespoke EMI plan that will maximise the benefits to your company and its employees. We are experienced in all aspects of the EMI scheme, including seeking assurance that your company qualifies for the scheme; plus getting approval from HMRC and assisting with annual filing requirements.
EMI case study
BSR Bespoke chartered accountants helped a small but growing company implement an EMI scheme to reward its key employees for their hard work and dedication.
The company have plans to sell in the future and the EMI scheme was designed so that the employees could exercise their options ahead of a potential sale, meaning that the employees didn’t have to fund the purchase of the shares upfront. The scheme was taken up by all the employees it was offered to.
Interested in finding out more?
At BSR Bespoke, we have a wealth of experience helping businesses to set up successful employee share schemes that meet the needs of both employers and employees. If you are looking to utilise the EMI scheme, we can provide tailored advice and support to ensure that your company and employees receive the most efficient tax treatment possible. Our experienced team of advisers can help to assess whether the EMI scheme is right for your organisation and assist with any queries or questions you may have.
Please get in touch with Jonathan Parsons or Adam Hills by calling 01892 514514 or by email advice@bsrb.co.uk.