EMI
Share Schemes

The Enterprise Management Incentive or ‘EMI’ is an HM Revenue & Customs approved share option employee incentive scheme aimed at small entrepreneurial companies that meet certain conditions. It has been designed to assist such companies to recruit and retain high quality employees.

 

The scheme offers attractive opportunities for equity participation by employees, in recognition of the fact that smaller companies may not be able to match salary levels paid elsewhere. The EMI is also flexible enough to allow for the option share to be geared to future capital growth and performance targets to be used in the scheme. So long as the options keep qualifying for EMI status, throughout the period of ownership, the employee should be able to take advantage of income tax and NI reliefs.

 

To qualify for an EMI scheme companies have to meet various requirements, including that they must:

 

  • be independent (i.e. not have 51% or more of their share capital owned by another company);
  • carry on a qualifying trading activity (certain activities, such as banking and shipbuilding amongst others, are excluded);
  • only have subsidiaries that carry on qualifying trades and are at least 51% subsidiaries;
  • have gross assets of less than £30 million; and
  • have fewer than 250 full time equivalent employees.

The advantages of EMI schemes include:

 

  • no income tax or National Insurance contributions on grant of the options;
  • no income tax or NICs on exercise of the option (as long as the exercise price is set at a value equal to or greater than the market value of the shares on the date the option was granted);
  • on disposal of the shares acquired pursuant to the EMI scheme the individual’s gain is subject to capital gains tax at a lower rate than income tax;
  • Entrepreneurs’ Relief may now be available on the disposal of EMI Option Shares, meaning gains on disposal may be taxed at just 10% (see below);
  • the company may also be able to benefit from a corporation tax deduction that crystallises when the options are exercised;
  • granting options may help align employee and shareholder interests; and they can be a cost effective way to reward employees for increasing the company’s value.

 

Implementation of an EMI scheme is reasonably complex. A share valuation will need to be undertaken with this then being agreed with HMRC in advance of the options being granted.

 

Once any valuation has been agreed with HMRC, which would generally take around 30 days, the process of drafting the required legal contracts and plan rules can be undertaken.

 

We have implemented many EMI schemes and are experts in business valuations and scheme implementations. We can also draft all the legal documents as part of the process negating the need for a solicitor.

 

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