The EMI is an HMRC approved share option plan which is targeted at SME UK businesses to help them recruit and keep their best staff. The scheme is adopted by many UK companies, the main benefit of which is the tax benefits it can provide to its employees and the companies providing the option.

How does it work?

Employees are offered options to buy shares at a set price at a certain point in the future. The value that they pay in the future will be set at the time the option is granted. The idea being that the share price will increase in the intervening time but the employee will be able to buy the shares at a discount (the price set at the time of granting the option).

It allows companies to provide a highly tax efficient reward and incentive to employees to remain with the company and to also make them personally committed to help grow the company.

Tax reliefs

• No income tax on granting to employee
• No income tax or social security on exercise
• The gain is taxed at a rate of 10% rather then the usual 18% or 28% provided the employees have held the options more than a year and have been employees for more than a year prior to the sale.
• The individuals will be able to use their CGT annual exemption (currently at £11,100)
• The UK company can use the option payment as a corporation tax deduction.

Flexibility

• If an employee leaves the unexercised option will lapse.
• Allows options to be exercised in stages if required.

Company Qualifying Criteria

• Gross assets of no more than £30m
• Companies running certain businesses are excluded, listed below:
  • dealing in land, commodities or futures, or shares, securities or other financial instruments;
  • dealing in goods, otherwise than in the course of an ordinary trade of wholesale or retail distribution;
  • banking, insurance, money-lending, debt-factoring, hire purchase financing or other financial activities;
  • leasing (including letting ships on charter, or other assets on hire) or receiving royalties or other licence fees;
  • providing legal or accountancy services;
  • property development;
  • farming or market gardening;
  • holding, managing or occupying woodlands, any other forestry activities or timber production;
  • operating or managing hotels or comparable establishments or managing property used as a hotel or comparable establishment;
  • operating or managing nursing homes or residential care homes, or managing property used as a nursing home or residential care home;
  • shipbuilding, coal and steel production.
• The company must be independent– it must not be a subsidiary of or controlled by another company
• Permanent establishment in the UK
• Less than 250 employees
• Shares must be ordinary shares– but they need not have all the rights of ordinary shares; so, for example, they may have no voting rights attached.

If you would like to know more about this important tax efficient staff incentive scheme, please contact your Barnes Roffe partner.

Blog Author: Ahmet Hussein