Employee Share Schemes
An Enterprise Management Incentive (EMI) scheme is an approved employee share scheme whereby qualifying companies can grant share options to qualifying employees up to the value of £250,000. An EMI option scheme may be granted under a set of plan rules, or by way of stand-alone EMI option agreement however a company cannot grant EMI options over more than £3 million worth of shares at any time. Specifically aimed at small, growing companies, an EMI option scheme can provide significant advantages to both the employee option holder and the company.
Does my company qualify for an EMI Option Scheme?
Most but not all companies can grant EMIs. Companies that work in ‘excluded activities’ are not permitted to offer EMIs. These activities include banking, farming, property development, provision of legal services, and ship building. In addition, the company must be an independent trading company with:
- Assets of £30 million or less; and
- Fewer than 250 full-time employees
Do I qualify for an EMI Option Scheme?
In order to qualify for an EMI option scheme, an individual must be an employee of a qualifying company, or one of its qualifying subsidiaries. The employee must spend at least 25 hours per week, or at least 75% of their working time, as an employee of the company and must not hold more than 30% of the company shares. EMI options cannot be granted to non-executive directors or consultants.
Do all shares qualify for an EMI Option Scheme?
Not all shares qualify for EMI options. EMI options can be satisfied by newly issued shares or by the transfer of existing shares from a shareholder. The shares must also meet certain requirements. The shares must be non-redeemable, fully paid up, ordinary shares.
Why should I consider an EMI Option Scheme?
An EMI option scheme can be beneficial to both an employee and a company. As well as being a valuable tool for recruiting employees and incentivising key staff, EMI option schemes can be very tax efficient.
Usually, an employee would pay income tax on the market value of any shares or options granted to them by a company. With EMI option schemes, an employee will not have to pay income tax or national insurance if they buy the shares for at least the market value they had when they were granted the option. When the option shares are sold, any uplift in the value of the shares will be subject to the lower rates of capital gains tax (in comparison to income tax rates). Shares acquired on the exercise of EMI options also qualify for entrepreneurs’ relief so provided the conditions are met, capital gains tax will only be charged at 10%. The employee can also use their annual capital gains tax exemption.
For companies, a corporation tax deduction may be available when the EMI options are exercised. Relief is given in the accounting year in which the options are exercised and should be claimed by the option holder’s employer company (not the company whose shares are acquired, if different). The deduction is equal to the gain the employee makes.
If you have any questions or would like further information on an EMI option scheme please contact Suzy Giele.