29th March 2023
Are you looking to grow your business and reward employees in a tax-efficient way? If so, Enterprise Management Incentive (EMI) schemes could be the answer. EMI offers smaller businesses access to company share options that would have typically only been available to larger companies; in this guide we will provide an overview of what they are, who can benefit and how they work.
Enterprise Management Incentive (EMI) schemes are tax-advantageous employee share option schemes. They are of particular relevance to smaller and fast-growing companies, who may not be able to compete with the salaries offered by their larger and more established competitors, but can offer the potential of a good return on investment down the line.
Furthermore, they enable companies to reward their employees whilst offsetting the costs against their tax bill.
There are certain criteria that employers must meet in order to offer an EMI scheme, including:
There are also eligibility criteria that employees must meet, including:
Qualifying companies can grant employees share options of up to £250,000 in any three-year period. In order to take advantage of all the tax benefits, they must be sold within 10 years of being granted. No tax or National Insurance Contributions (NICs) are payable on the options (by either the employer or employee) as long as they are purchased at the market value they had at the time the option was granted, and are not exercised for at least two years.
In addition to the above, there are further tax benefits for both employers and employees. Employers receive Corporation Tax relief on the difference between the market value of the shares upon exercise of the options and the price that was originally paid.
Meanwhile, employees benefit from a reduced rate of Capital Gains Tax (10% vs the normal 20%) when they sell their shares. This is payable on the difference in the shares’ value at the time they were exercised vs when they were sold.
There are several stages involved in setting up and registering your EMI options scheme, as follows:
We hope that you have found this article useful and now have a better understanding of the ins and outs of EMI schemes. Here at Thompson Jenner, our specialist team are on hand to deal with any enquiries you may have.