It’s been an eventful year for Enterprise Management Incentives (EMI). EMI made headlines in April, when HMRC revealed problems obtaining continued EU state aid approval. After some uncertainty, it was announced that EMI continues unchanged – and new research underlines the importance of the scheme.
EMI helps companies looking to motivate and retain staff, allowing them to offer shares to selected employees by issuing options. With EMI, an employee can receive shares without a tax bill arising until shares are sold. Share disposal will attract capital gains tax (CGT), but in most circumstances, employees will be able to access Entrepreneurs’ Relief, reducing CGT liability to 10%.
For the employer, there is normally no National Insurance charge when options are granted or exercised, or when an employee sells the shares. Employer companies also receive a corporation tax deduction broadly equal to the employee’s gains.
EMI is targeted at high-growth companies. Firms in qualifying industries with total assets under £30 million, and fewer than 250 workers are eligible. Employees must dedicate a minimum of 25 hours or 75% of their time to the business.
To qualify, a company must also:
- exist wholly for the purpose of carrying on one or more ‘qualifying trades.’ Asset backed trades, such as property development, operating or managing hotels, and farming or market gardening are excluded
- not be under the control of another company. This means that if there is a group of companies, employees must be given an option over shares in the holding company.
It is also necessary for options to be capable of being exercised within ten years of the date of grant, but there does not have to be a fixed date.
The benefits of EMI should always be assessed within the context of overall commercial objectives. It can, however, be of special benefit to companies experiencing rapid growth, or those involved in research and development. We should be delighted to advise whether EMI may be an appropriate path for your company.
This publication has been prepared by Robinson Reed Layton LLP. It is to be treated as a general guide only and is not intended to be a comprehensive statement of the law or represent specific tax advice. No liability is accepted for the opinions it contains, or for any errors or omissions. All rights reserved.