Share Schemes: Is your company EMI eligible?
A follow-up to our June article “How to Incentivise Staff following the COVID-19 Crisis” and an overview of the legislative conditions required for companies to grant EMI options.
A popular tax-advantaged share scheme is the Enterprise Management Incentive Scheme (“EMI”). An HMRC research report found that “the EMI scheme had led to increased equity investments” and the majority of adopters surveyed “perceived EMI to be successful in helping companies retain key and skilled staff and improve staff morale”.
Employee share schemes are well established means of retaining and incentivising staff. Whilst for some companies implementing such schemes is a way of keeping pace with the competition, they also help to generate a genuine culture of engagement and sense of ownership among employees. It is easy to understand why EMI schemes are popular among SMEs considering their favourable tax treatment for employees:
No income tax liability on the grant of the EMI options
No income tax liability on the exercise of the options if, at the time of grant of the options, the exercise price was at least equal to the market value of the shares in the company
If the exercise price was less that the market value of the shares then income tax is due on the difference between the exercise price and the market value at the date of grant
On a sale of the EMI option shares, there will be a capital gains tax liability on any gain over the market value at the date of grant
On exercise of EMI options, there may also be a corporation tax deduction for the company. The deduction is the difference between the market value of the shares on the date of exercise and the amount the employee pays for them.
Companies must satisfy a number of requirements to be EMI eligible:
Companies considering implementing an EMI scheme should be aware that there are further rules that need to be followed to ensure EMI eligibility such as which employees can be granted EMI options, what shares can be used to grant EMI options, individual and company EMI limits, disqualifying events and HMRC filing requirements.
Our experts can help your business if you are considering implementing an EMI share scheme. We can advise on and deliver the required paperwork for both the company and the selected employees.