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 staff. An Enterprise Management Incentive (EMI) is one of the best ways to reward your employees.
EMI option is government-backed, tax advantageous share option schemes to retain and engage your staff members. 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 National Insurance or Income Tax if you buy the company's shares on the market value. However, you will have to pay these taxes if you are given a discount on the market value. The taxes will be charged on the difference between what you paid and the value of the share. In case you decide you sell these shares, you may have to pay Capital Gains Tax.
Who Can Receive EMI Options?
EM options are not for all circumstances. There are some set standards that you need to qualify to get the employee management incentive scheme. At this point, the company has the power to decide the employees who should have these options. Up to £250,000 per employee, £3 million for the whole company can be granted.
Employees typically qualify if they work for at least 25 hours per week for their company, including its directors. If they don't give 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 competent or qualified 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.
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:
- Ship building
- Property development
- Provision of legal services
The employer needs to ensure that the options granted to the employee are qualified under the EMI scheme. The best way to do that is by getting clearance from HMRC and confirming that the company is qualified under the rules and what the market value of shares is at the date of grant.
You have to keep HMRC in the loop by notifying them once the options have been granted under certain time limits. If these deadlines are missed, these options won't qualify under the EMI scheme and will be considered unapproved share options.
A form needs to be submitted to the HMRC within the time frame, usually 92 days. This form includes a declaration by a company secretary or director of the employer company stating that all the requirements are met, and the information provided is correct.
The Benefits of Enterprise Management Incentives (EMI)
As mentioned earlier, start-ups have benefited from the EMI 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 staff and tie them to the future performance of the company. EMI also aids the employer in enabling the company to set strategic objective targets for individual employees, increasing the performance-driven nature of the incentive.
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 a huge chance 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 national insurance 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.