Enterprise Management Incentive (EMI) schemes – an overview

EMI Schemes are suitable for small or medium sized trading companies and give the holder a right to acquire shares in the company of which he or she is an employee. These schemes must be approved by HMRC and provide considerable commercial and tax benefits, subject to qualifying requirements.

EMI Schemes are attractive to companies who wish to reward, motivate and incentivise key staff; retain key staff for the medium to long term; and promote share ownership in the company in a tax efficient manner. For the employee they provide a prospective long term reward to stay with a company with highly favourable tax treatment. The tax advantage for the employee is that if EMI options are granted at market value there will be no charge to Income Tax or National Insurance Contributions upon either grant or exercise of the options. Future disposal of the EMI shares, following exercise of the options, are subject to Capital Gains Tax and are also eligible for Entrepreneur’s Relief whereby individuals who dispose of business assets can qualify for a reduced Capital Gains Tax rate of 10%, provided that shares are sold at least twelve months after the date of grant of the option. There is no taxable charge to the company on the grant or exercise and, in fact, the company can usually claim a Corporation Tax deduction equalling the market value of the shares at exercise less the amount paid by the employee. There are no National Insurance Contributions payable by the employer.

EMI Options have to be granted for commercial reasons in order to recruit or retain an employee in the company and not for the purpose of avoiding tax. There are accordingly a number of restrictions imposed upon both the company and employee, a number of which are as follows:

The total value of the company’s gross assets must not exceed £30m; the company must be a trading company, not under the control of another company and it must have fewer than 250 employees on the date the EMI options are granted. An employee who is to be granted an EMI option must: be an employee of the company; work 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 shares of the company.

EMI Schemes are highly regulated by HMRC and require expert tax, accounting and legal advice before implementation.

Ellis Jones is experienced in working with accountants to implement these schemes.

For more information please contact the Author on tel: 01202 525333 or email: neil.cook@ellisjones.co.uk.