The EMI is a tax advantaged HMRC approved share option plan designed to help a wide range of companies attract and retain employees who possess the skillset to help them grow and succeed.
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.) Often the price will be the value of the shares when the EMI option is granted. There is no obligation to exercise the option, so if the share price doesn’t rise employees would be unlikely to exercise.
An EMI allows a company to reward employees without immediately diluting the holdings of existing shareholders and encourages staff loyalty and long service. The scheme is relatively simple (and therefore cost effective) to implement and avoids the immediate tax and national insurance costs that can arise on awarding shares to employees. EMI is also significantly more tax efficient compared to unapproved options as any growth in the value of the shares after grant is taxed as a Capital Gain (no more than a 28% rate) as opposed to employment income (potentially at a 52% rate). For more information, download one of our fact sheets.
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. There is no statutory minimum exercise period.
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).
There are a number of legal requirements which companies must satisfy in order for their share options to qualify as EMIs, 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; The company (or group of companies) must have fewer than 250 full-time equivalent employees at the time the share option is granted.
The shares used for EMI options can be subject to restrictions, but they must be ordinary shares which are 'fully paid up' (for company law purposes) and not redeemable or convertible.
The company must have fewer than 250 full-time equivalent employees. A full-time employee is one who works 35 hours a week or more, and the company must include fractions representing part-time employees. Non-executive directors, overseas employees and employees of "qualifying subsidiaries" in which the parent company owns a controlling stake, must also be counted.
In order to qualify, participating employees including executive directors must spend at least 25 hours per week or, if less, 75% of their working time, on the business of the company or group of companies.
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.
You may feel cautious about allowing others to acquire ownership rights in your company. Where necessary this might be addressed by, for example, granting options over non-voting shares or allowing option exercise only on a sale of your company
Depending on the size of your company, the value of options granted may be treated as an expense against profits, so there may not be an accounting advantage for options compared with cash bonuses.
You will need to spend some time when setting up your EMI plan in designing it in a way which meets your own company’s needs and you will need to take time to communicate it clearly to participants
A 10% CGT rate will only be available if the conditions for Entrepreneurs’ Relief are satisfied (broadly, at least a 5% voting shareholding is disposed of, which has been held for at least one year by a director or employee). Where tax efficiency is a high priority and an individual is to be granted rights over at least a 5% shareholding, you should also consider direct share ownership as an alternative to EMI options as this may result in a lower rate of CGT on eventual share sale
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).
The cost will depend on how much help you are looking for. We would provide you with a cost after a free initial meeting. It is normally possible to give a fixed cost. We would not advise you to provide share incentives through EMI options unless the projected tax savings were significantly in excess of the professional costs.
If you would like a free consultation to discuss potentially implementing an EMI option plan, contact RM2 directly on 020 8949 5522, or via firstname.lastname@example.org.