Enterprise Management Incentive (EMI) Scheme

The EMI scheme is structured as an option based scheme and is specifically aimed at the smaller ‘higher risk’ trading company.

EMI Explained

The EMI scheme is structured as an option based scheme and is specifically aimed at the smaller ‘higher risk’ trading company. EMI options are particularly attractive for small or start-up companies that may opt for EMI options when cash is tight to remain a competitive employer against larger companies for key employees.

The scheme allows employers to grant share options to key employees in a tax efficient way, as a reward for their efforts and/or to retain and incentivise key employees long-term. They provide employers and employees with significant tax benefits and are much more flexible than other tax favoured share arrangements.

A number of EMI schemes are ‘exit-based’ with the share options being exercisable on a sale or flotation of the company. Most owner managed companies prefer this type of arrangement, since the option holders do not become shareholders until shortly before the sale of the company. This also ‘rewards’ the employee option holders with a share of the sale proceeds (taxed at beneficial capital gains tax rates).

Having share options can sometimes be more feasible and attractive to employees. They might even be more incentivising if the EMI options are such that provide exercisability upon target achievement. Companies may prefer also not to provide outright shares to employees in order to avoid complications in the event of the employees leaving the company.

Companies offering EMI share options must be involved in qualifying trades. Excluded trades include:

  • Banking,
  • Farming,
  • Shipbuilding,
  • Legal services, and
  • Property development.

Do contact Lawrence Grant to learn more about eligibility, qualifying conditions and benefits of EMI schemes.

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EMI Benefits

Having ownership in the company you work for – not just professional but financial – can mean a lot to some employees. The EMI scheme comes with a number of benefits, including:

  • Share options up to a market value of £250,000 in a three year period;
  • No income tax or National Insurance charge on exercise of options if granted at market value;
  • The options can be granted conditionally, subject to performance criteria;
  • If conditions are met, reduced capital gains tax rate at 10% in the event of sale of shares;
  • Even part-time employees working for as little as 25 hours per week can qualify.

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1. What companies are eligible to give their employees EMIs?

To be eligible for EMI, a company must

  • Be independent and not controlled by another entity;
  • Have gross assets less than or equal to £30 million;
  • Employ fewer than 250 employees;
  • Carry on a ‘qualifying trade’;
  • Have a permanent establishment in the UK.

2. I work part-time in a company for less than 25 hours a week. Can I qualify for EMI share options?

Yes, if the amount of time you work for your primary company – where you would receive EMI share options – is greater than or equal to 75% of your total working time.

3. Are there any drawbacks of EMI?

The qualifying conditions of both employers and employees may be a discouragement to some companies. Meticulous structuring and oversight are required to ensure the share options adhere to HMRC guidelines. It is also imperative to notify HMRC within 92 days of granting an EMI option to ensure its EMI qualification.

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