Retain and Engage Your Employees With EMI

Building a business is one thing, but growing it is another matter altogether. If you've put in the hard work with your employees and have finally achieved those mighty revenue targets, you may want to retain and reward your primary employees. An Enterprise Management Incentive (EMI) is one of the best ways to reward your employees of trading companies.

EMI option is government-backed, tax advantageous share option schemes to retain and engage your key employees. EMI options scheme is the most efficient way to share the ownership of your business with your workforce.

EMI schemes are highly flexible and have various time frames and conditions that can adjust accordingly. You have the reins in your hand as you control the conditions, including the performance milestones and length of service.

Lawrence Grant, through its team of EMI experts, can provide assistance in exploring your EMI options to prepare the most suitable incentive scheme for your employees.

Characteristics of EMI

Start-ups are eager to adopt the EMI scheme and have significantly benefited from it too. It has helped in keeping talented and qualified employees in the company as it grows.

Another attractive aspect of EMI is that you, as employees, will not have to pay Income Tax or National Insurance Contributions (NICs) provided when the EMI option is exercised, the shares are purchased at a price which is at least equal to their market value they had on the day the employee was granted the option. If the employee buys shares at less than their market value, there will be an income tax charge when the option is exercised. There will also be NICs if the shares are considered “readily convertible assets”. Readily convertible assets are shares that can be sold for example on a recognised stock exchange. In case you decide to sell these shares, you may have to pay Capital Gains Tax.

Who Can Receive EMI Options?

EMI options are not suitable under all circumstances. There are conditions that you need to meet to be able to grant the EMI option. At this point, the company has the power to decide the employees who should have these options, up to a maximum share of £250,000 per employee; and £3 million for the whole company.

Employees typically qualify if they work for at least 25 hours per week for their company, including its directors. If they don't do at least 25 hours, they should be engaged in work for 75% of their working time. This way, part-time employees can also be a part of this.

Employees who already own over 30% of the company do not qualify for this scheme. A qualifying company should be independent, and its gross assets must not exceed £30 million. Another condition is that the company should have fewer than 250 employees.

Excluding Activities

Many companies involved or work in excluded activities are not allowed to offer EMIs to their employees. If a company is working in the following activities, EMI schemes are not applicable. Excluded activities include:

• Shipbuilding
• Banking
• Property development
• Farming
• Provision of legal services

EMI Procedures

The employer needs to ensure that the options granted to the employee qualify under the EMI scheme. The best way to do that is by obtaining clearance from HM Revenue and Customs (HMRC), confirm that the company qualifies under the rules and also agree the market value of shares at the date of grant.

You have to notify HMRC within 92 days of the date of the grant of EMI options. If this deadline is missed, these options won't qualify under the EMI scheme and will be considered unapproved share options.

The notification is done by logging into HMRC's Employment Related Services (ERS) website.

If you do not have a Government Gateway user ID and password, you will need to sign up for one in order to make your initial notification to HMRC. HMRC will request your full name, email address, and a password to create this account. You will later use this same account to make notifications about option grants and file yearly returns (see below).

The Benefits of Enterprise Management Incentives (EMI)

As mentioned earlier, start-ups have benefited from the EMI option share scheme on a massive scale, but because the scheme is not limited to start-ups, other businesses can benefit equally. Employers have been able to retain key employees and tie them to the future performance of the company. EMI also aids the employer in enabling the company to set strategic performance targets for individual employees to expand the basis on which employees are rewarded for their contribution.

Employees also greatly benefit from this scheme as it improves job satisfaction and productivity with an eventual stake in the business. Moreover, EMI options provide an opportunity for employees to be future shareholders and be rewarded for the hard work that they put in. Another advantage for employees is that they don't have to pay income tax and NICs if they buy shares through this scheme at their market value.

Lawrence Grant can enable your EMI setup and help execute the most suitable framework. Our professionals have helped businesses with developing efficient EMI structures. Please get in touch to learn more.