Enterprise Management Incentives (EMI) made headlines in April 2018, after HMRC revealed problems in securing continued EU state aid approval. After a period of uncertainty, it was announced that EMI will continue, unchanged. New research highlights the importance of the EMI scheme.
The Enterprise Management Incentives (EMI) scheme is a share option scheme. It offers a number of tax advantages and can work particularly well for smaller businesses. The scheme came under the spotlight in spring 2018 due to problems obtaining continued authorisation from the EU. For a time, it was unclear whether EMI options would be eligible for tax relief. Fortunately, the issues were resolved and it is business as usual for EMI.
EMI scheme: tax-efficient share options for staff
The EMI scheme allows companies to offer shares to selected employees by issuing options. For young, growing companies which may have less liquidity early on, EMI can help to attract, retain and motivate high-calibre staff. Employees are rewarded with the chance to receive remuneration that will potentially fall within the capital gains tax regime, rather than the income tax regime.
Under EMI, an employee can receive shares and will not receive a tax bill until shares are sold. The disposal of shares will attract capital gains tax (CGT) but in most cases, employees will be eligible for Entrepreneurs’ Relief (ER). ER will in turn reduce the CGT liability to 10%.
There is normally no National Insurance charge for the employer when options are granted or exercised. The same applies when an employee sells the shares. The employer company will also receive a corporation tax deduction which is broadly equal to the employee’s gains.
EMI is aimed at high-growth companies. To use the scheme, a business must trade in a qualifying industry, have total assets of less than £30 million, and fewer than 250 workers. Employees must commit at least 25 hours or 75% of their time to the business.
To qualify, a company must also:
- exist wholly for the purpose of carrying on one or more ‘qualifying trades’. Asset-backed trades – such as property development, operating or managing hotels, and farming or market gardening are excluded.
- not be under the control of another company. If there is a group of companies, employees must be given an option over shares in the holding company.
In addition, options must be capable of being exercised within ten years of the date of grant. There does not have to be a fixed date.
Considering Enterprise Management Incentives for your business?
The benefits of EMI should be assessed within the context of overall commercial objectives. It can be of particular benefit if your business is experiencing rapid growth or is involved in Research & Development. Your RfM advisor can advise whether EMI may be an appropriate path for your company.
RfM Business Consulting provides strategic advice for small and medium-sized companies looking to grow. Find out more.
If your business carries out R&D activity, you may be eligible to claim valuable tax reliefs and a cash sum. Find out more.
For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.