Compelling data from academic research shows that companies that offer an employee share incentive are more likely to outperform those that do not. An EMI scheme offers a cost effective and exciting way to motivate and retain your team whilst incentivising them to drive your business growth and profit. 
  • Enterprise Management Incentives (“EMI”) are Government-backed employee share options which allow companies to grant rights to employees to acquire shares.
  • EMI schemes have been a real success with latest HM Revenue & Customs statistics stating that 8,610 companies use them (as at 6 April 2016).
  • EMI options can be used to retain and motivate selected employees or all employees (as the company’s shareholders see fit).
  • The scheme confers significant tax benefits on both companies and their selected employees.
  • EMI is extremely flexible and can be tailored to meet a company’s specific objectives. 

Case studies

Outline

EMI allow companies to grant options (i.e. rights to acquire shares) to qualifying employees on a highly tax efficient basis for both the employer and participating employees.

EMI can be used by both private and smaller listed companies alike and either for targeted grants to specific key employees or on a wider (even all employee) basis.

EMI can be granted over UK or overseas company shares, provided that at least one company in the relevant group has a UK permanent establishment.

Certain other requirements must be met by both the company and the employee in order for options to qualify as EMI options, such as a limit on a company or group’s gross assets through to the employee working at least 25 hours a week (or at least 75% of his or her overall paid time). See EMI qualification note for more details.

EMI can form a tax efficient part of a company’s succession planning (bringing selected key employees through to have a stake in the business) or be used as a pure incentive arrangement.

Further information

Benefits

EMI offers significant flexibility and arrangements can be designed to meet a company’s commercial objectives.

EMI also confers real tax benefits on both employers and employees which can result in:

For the employer
  • No tax cost (subject to certain conditions);
  • No employer’s National Insurance Contributions (“NIC”) on either the grant or exercise of the options (provided certain conditions are met); and
  • Corporation tax relief on the difference between the market value of the shares at exercise of the options (i.e. when the shares are acquired) and the option price paid. This can provide a substantial windfall to the business/shareholders on a sale.

 

For the employee
  • Lower tax costs than cash/non-EMI arrangements
  • No income tax and no employees’ NIC on either the grant or exercise of the options (provided certain conditions are met)
  • Capital Gains Tax (“CGT”) on the growth in value of the Growth Shares; and
  • Importantly, most EMIs will start to accrue the 12 month holding period for entrepreneurs’ relief (“ER”) from the date of grant of an EMI option (resulting in a 10% (as opposed to 20%) rate of CGT). There is also no need for a 5% holding under EMI in order to qualify for ER; so even small minority holdings of Growth Shares can potentially qualify for the 10% rate of CGT.

EMI also allows companies to obtain agreement from HM Revenue & Customs as to the valuation of the shares under option – providing tax and valuation certainty to the company and employees alike. 

Disadvantages

As an HM Revenue & Customs tax favoured arrangement there are certain qualifying conditions to be met in order for companies and employees to qualify under EMI. Some of these can be restrictive, although in cases of doubt HMRC can be approached for pre-clearance.

Although granting EMI options can be done with relative ease, there are a number of post-grant pitfalls that need to be borne in mind. Please see EMI pitfalls for more details. 

How we can help

The beauty of EMI is the flexibility that can be in-built to meet a business’ specific objectives. We have significant experience in implementing EMI in a diverse range of sectors to meet wide ranging commercial objectives.