What are Enterprise Management Incentives (EMIs)?
Enterprise Management Incentives (EMIs) are an approved tax-advantaged employee share scheme allowing employers to grant share options to employees, most of the time as a reward for their efforts. It is designed for small companies and is not to be confused with the Enterprise Investment Scheme (EIS), where investors receive tax relief on their investment to small companies.
What are the tax advantages?
Employees that are granted options within the EMIs scheme at market value will not have to pay Income Tax or National Insurance Contributions at either grant or exercise of the options. In comparison, unapproved shares will have Income Tax and National Insurance Contributions charged on the difference between the market value of the shares and any amount paid towards them. If the company’s share price has increased in value between the time of grant and exercise, the uplift is not charged to Income Tax but it will fall within the Capital Gains Tax regime (CGT), where lower rates apply (10% or 20% in comparison to Income Tax rates of 20%, 40% or 45%).
In the case where shares are acquired at less than the market value, there will be Income Tax charge. The chargeable gain will be the difference between the chargeable market value and amount paid for the shares, where the chargeable market value is the market value of the shares at the time the option was granted or, if lower, the market value of the shares at the time the option is exercised.
For the employer company
The main tax advantage for the company granting the options is that it can usually receive a Corporation Tax deduction, which is equal to the difference between the market value of the shares at exercise and the exercise price.
The EMIs scheme is an attractive way for companies to reward and offer incentives to key employment staff, align their interests with their companies’ and also to retain the employees for longer periods of time.
Does my company qualify for the scheme?
For a company to qualify for the scheme, it must:
- Have gross assets of less that £30 million
- Have less that 250 employees
- Not be a 51% subsidiary of another company or controlled by another company
- Be a trading company which does not work in ‘excluded activities’.
Excluded activities include:
- property development
- provision of legal services
- ship building
Do my employees qualify for the scheme?
For an employee to qualify for the scheme, they must:
- Be working for the company for at least 25 hours per week or, at least 75% of their working time
- Not hold more than 30% of the shares of the company
Conditions that need to be met for the shares:
- The shares must be ordinary, fully paid up and non-redeemable
- They must be exercisable within 10 years of grant and non-transferable
- The market value of the option must not exceed the £250,000 per employee, at the date of grant
If you would like to know if your company can qualify for the scheme or discuss in more detail what the process is, please do not hesitate to contact us.