Your guide to EMIs
Enterprise Management Incentive (EMI) schemes are great for keeping and encouraging employees by awarding significant tax benefits to both company and worker. Typically, you may see EMIs being used as a tax-efficient tool to aid with a company’s internal growth (such as bringing up key workers to have a stake in the business).
The scheme itself is quite flexible in that it can be fashioned to suit the targets of a company, such as allowing companies to allow options to qualifying employees on an efficient tax basis (for example, the right to subscribe to shares). Private or small companies can take great advantage of this to gain access to select grants for selected employees or even their entire workforce.
EMIs can only be awarded to companies with a permanent establishment in the UK, but if your company has overseas shares, you can rest assured as EMI options are still available to you. There are a few other requirements to qualify for an EMI, namely the company itself must:
- Have gross assets less than £30m
- Operate in a qualifying trade, which does not include financial & legal activities, leasing, farming, and property development
The options available through EMI also have conditions attached:
- Ordinary shares issued must be fully paid and not redeemable
- EMI treatment is only applied to shares not exceeding £250,000 per individual
- Options can be awarded at discount (even nil price) at the risk of tax consequences
- These options must be exercised within 10 years
Employees are also subject to eligibility requirements, namely:
- EMI options are only available to employees working more than 25 hours a week, or who spend 75% or more of their time working for the company
- The employee must not have more than 30% of the company share capital before options are awarded to them
What are the benefits?
EMIs can be tailored to help a company achieve their commercial objectives, and have benefits for both employer and employee alike:
- No tax cost
- No employer NIC on grant or options exercised
- Corporation Tax Relief on the difference between the market value of shares at the time of acquisition and the price paid
- HMRC validation of share valuation, allowing for tax certainty in the interest of the company and workers.
- Only tax payable is CGT arising when shares are sold
- Lower tax costs compared to non-EMI schemes or even cash
- No Income Tax or NIC payable on grant or options exercised
- Reduced CGT rate – EMIs will cause a 12-month holding period for Entrepreneurs Relief to accrue, resulting in a reduced 10% CGT rate. This rate can be achieved even with minority holdings in Growth Shares
There are several changes or developments within a company that could lead to disqualification from EMI. Also known as “disqualifying events”, they include the following:
- Loss of independence – Namely when a company becomes a 51% subsidiary of another company
- No longer meeting the trading requirements – When the company’s activities become primarily focused on a non-eligible trade. It could also occur when the intent to carry out a qualifying trade was never realised.
- Employees are no longer eligible – Usually, if they no longer work at the company or meet the required hours
- Share capital is altered
- If Company Share Option Plans (CSOPs) are granted – This means the amount of unexercised options exceed £250,000
You may want to heed caution to this as if your company is subject to a disqualifying event, you may be liable to a tax charge. This is usually imposed when the EMI option is exercised after 90 days of a disqualifying event, causing income tax and NICs to become payable on the increase in share value from when the disqualifying event occurred and when the option was exercised.
How can I register for EMI?
You can report your options to HMRC electronically within 92 days of receiving the grant. It is advised that you agree upon the share market value in advance with HMRC.
WIM Accountants can also help you in dealing with all aspects of your EMI plan and will endeavour to make sure it truly reflects the commercial objectives of your business.
Get in touch with us to find out more.