Keeping key people – EMI scheme
The EMI (Enterprise Management Incentives) scheme is the most popular type of share option scheme available. It is approved by HMRC and enables share options to be granted to selected employees without any tax implications. Both employee and employer can benefit from this tax advantageous scheme.
A share option is the right to buy a certain number of shares at a fixed price, at some time in the future. Employees can exercise their options – buy the shares – after a ‘vesting’ period or upon the satisfaction of preset performance conditions. The employer can make the granting and exercising of options dependent on reaching certain targets which may be applicable to the company or the individual.
We can advise and implement a scheme tailored to your requirements which will:
- attract, retain and motivate key employees;
- retain flexibility and control over many aspects of the share options you grant (i.e. subject them to performance measures and/or time limits);
- improve reported results by providing share options instead of salary to employees;
- increase competitiveness by offering a diverse remuneration package and opportunity for ownership.
A market value for the shares is agreed at the time they are granted and if this amount is paid by the employee on exercise of the option then no income tax liability will arise even if the shares are worth considerably more at that time.
As stated above, the company may place conditions which must be satisfied before the options can be exercised and these will ensure that the employees perform at a sufficient level to justify the reward of ownership in the company.
Key features of the scheme include:
- Options over shares worth up to £250,000 at the date of the grant can be granted to an employee, and these are tax and NIC free on the grant.
- On exercise, the employees can obtain shares at a large discount without any tax implications.
- The scheme is available for employees selected at the company’s discretion.
- The company will get corporation tax relief for the costs of operating the scheme including a corporation tax deduction for the difference between the value of the shares at grant and the amount the employee pays for the shares.
- The shares may qualify for the “Entrepreneurs Relief” which means that on disposal of the shares, tax paid by the employee could be as low as 10%.