RM2 > Employee Share Schemes > Enterprise Management Incentive (EMI)

Enterprise Management Incentive (EMI)

What is an EMI?

The EMI is a HMRC tax advantaged share option plan designed to help a wide range of companies attract and retain key employees.

How does an EMI work?

Employees whom you select to participate are granted an option to buy shares in your company, paying a fixed price if they do decide to buy the shares (exercise the option.) There is no obligation to exercise the option, so there is minimal risk for participants.

What are the benefits of an EMI?

An EMI allows a company to reward employees without immediately diluting the holdings of existing shareholders and encourages staff loyalty and longer service. Using EMI options avoids the immediate tax and national insurance costs that could otherwise arise when awarding shares to employees. Any growth in share value after grant is taxed as a Capital Gain as opposed to employment income.

You may feel cautious about allowing others to acquire ownership rights in your company. Where necessary this may be addressed by, for example, granting options over non-voting shares or allowing option exercise only on the sale.

For more information on the tax treatment, please download our EMI fact sheet.

Performance conditions for EMI share schemes

Individual performance conditions can be attached both to the grant and the exercise of each EMI share option, and EMI share options can therefore be used as powerful short-term or medium-term incentives, or both.

Companies offering options under the Enterprise Management Incentive do not need prior approval from HM Revenue and Customs but EMI share options must meet detailed conditions and annual scheme returns are required.

Private companies can create an internal market in their shares by means of an Employee Benefit Trust (EBT).

Does my company qualify for an EMI?

There are a number of legal requirements which companies must satisfy in order for their share options to qualify, including:

  • The company must carry on a "qualifying trade". If the option is for a group of companies, at least one company in the group must carry on such a trade;
  • The company (or group of companies) must not have gross assets exceeding £30m;
  • The company whose shares are used may be listed or unlisted on a stock exchange, but it must be an independent company. This means that, in the case of a group of companies, the options must be over shares in the parent company to meet the EMI requirements; and
  • The company (or group of companies) must have fewer than 250 full-time equivalent employees at the time the share option is granted.

Please note: Participants must also meet certain qualifying criteria.

If you are uncertain whether your company or proposed participant(s) meet the EMI qualifying criteria, contact a member of the RM2 team directly on 020 8949 5522, or via enquiries@rm2.co.uk for assistance.

What are the limitations of an EMI?

There is a company limit of £3m on the total value of shares (as at the grant date) which may be available under EMI options at any given time. There is also an individual limit on the value of shares (as at the grant date) which any one employee may hold under the EMI option. This limit is currently £250,000. 

How long does an EMI take to set up?

In our experience, it is hard to provide fixed costs (with any degree of accuracy) or package up the sorts of work we undertake and this sort of area would be no exception. We find that one size virtually never fits all and what we offer is technical expertise coupled with a personal touch and a very commercial approach – the way we work is difficult to commoditise.

We are always very careful, though, to ensure that we scope out the work properly before we start, taking into account the complexity of the matter and the client’s needs and objectives, and provide a considered and tailored cost estimate to the client at the outset. This enables them to make an informed decision about whether they wish us to represent their interests without fear of unpleasant surprises at the end of the matter when the time comes to us rendering an invoice.

Typically our charging structures involve fixed or else capped fees (rather than being a meter running arrangement where the work takes as long as it takes and the client has no certainty as regards costs). 

How much does an EMI cost?

We generally offer a free initial consultation where we assess your situation, and gauge the level of service you require. Based on this consultation, we would work towards providing a fixed price for the design and implementation of your share plan.

We also offer on-going support and administration services for your share plan.

If you would like a free consultation, contact RM2 directly on 020 8949 5522, or via enquiries@rm2.co.uk.