EMI encourages smaller businesses to offer share ownership to key employees and directors through option arrangements.
SMEs often face challenges in attracting and retaining talent, putting them at a disadvantage compared to their larger competitors. However, securing the right individuals for key positions and retaining them is crucial for success.
While share incentives as part of remuneration packages might seem more common in large companies, EMI specifically targets SMEs, offering favourable tax treatment for both employers and employees.
EMI encourages smaller businesses to offer share ownership to key employees and directors through option arrangements. EMI aims to assist growing companies in seeking, retaining, and rewarding key employees for playing their part in the success of the business, especially if a company lacks the finances to offer competitive remuneration packages.
A share option grants someone the right to purchase shares at a fixed price in the future. Such options are highly effective in incentivising and retaining key employees since, if the shares appreciate in value, employees can reap significant gains upon selling them. Subsequently resulting in them to pay less tax than they would on other forms of remuneration or incentives.
EMI options are occasionally granted by independent trading companies with gross assets that do not exceed £30 million.
Options over shares with an unrestricted market value (UMV) of up to £250,000 per employee can be granted at the date of issue, coupled with no income tax or National Insurance Contributions.
A qualifying company can grant EMI options up to an overall limit of £3 million.
There is no approval process or clearance mechanism for EMI. The share valuation can be agreed in advance with HMRC.
Companies must notify HMRC within 92 days of granting an EMI option. Additionally, there is an annual reporting requirement.
Grant of Options: No income tax or National Insurance is applicable upon the grant of a qualifying EMI option.
Exercise of Options: If exercised within ten years of the grant, with no disqualifying event, and no discount at grant, there will be no income tax or National Insurance on exercise.
Finally, Sale of Shares: Capital gains tax will be payable on the disposal of the shares. Business Asset Disposal Relief may apply in many cases, resulting in a tax rate of just 10%.
The company obtains a corporation tax deduction for the EMI "Profit.
Even if, the difference between the market value of the shares at the time of exercise and the total amount paid for the option grant or exercise.
Valuation
A valuation needs to be agreed with HMRC for the shares.
It is important to have experienced advisers negotiate with HMRC.
Flexibility – Scheme Design
The key to maximising the benefits of the EMI scheme lies in its design. For example:
The scheme is tailored to the specific requirements of each business.
Qualifying Conditions
For the option to qualify, conditions relating to the company and the employee must be met.
Subsequently, EMI can be ideal for both start-ups and other SMEs seeking to enhance shareholder value and potentially in preparation for an exit event. Above all, customising to achieve objectives.
Interested in finding out more on the benefits of introducing an EMI or other employee share scheme? please get in touch.
