Why an MOT can keep your share plan running smoothly

Many businesses understand the importance of incentivising their staff, and will often invest significant time (and money) in designing and setting up an employee share plan such as Enterprise Management Incentives (EMI).

An EMI plan can play a central part in attracting, motivating and retaining staff.  It also offers substantial tax savings for both employees and employers. However, there can be costly consequences if you don’t establish the scheme correctly in the first place, or if you manage and administer it incorrectly over time.

In particular, the plan carries very significant tax benefits, and it’s surprisingly easy to lose those advantages without a full understanding of the relevant legislation and guidelines.  For example, a correctly granted EMI option should deliver an effective tax rate of 10% on the eventual sale of the shares.  On the other hand, your employees could end up paying income tax and National Insurance charges – at a much higher rate – if there are mistakes in your EMI scheme.  

In addition, as more options are granted and more employees join, the day to day administration of the plan can become increasingly burdensome.  All too often, managing an employee share plan falls to someone in the business whose time may be severely limited, and who may have little experience of the practicalities.  It’s no surprise that in these circumstances crucial details can be missed, or records lost.    

  • Failing to manage EMI correctly can have significant negative outcomes:
  • Wrong or incomplete paperwork can invalidate your EMI options altogether
  • Missing your annual returns, or filing incorrect returns, can result in fines from HMRC
  • Certain changes in your company’s trade or ownership can disqualify your EMI options
  • Finally, a poorly managed share plan can have repercussions when a sale arises including resulting in additional onerous warranties and price chipping

Just as you should regularly service your car, it’s sensible to carry out a Health Check on your employee share plans from time to time. This will ensure that your plan is still working the way it should, and will deliver the positive outcome you’re expecting for your employees and your company.

You might be feeling overwhelmed by the record keeping and annual filings; or you might just be a bit worried that you’ve not kept abreast of all the rules.  You might even be thinking about a sale of the business, and wanting to be sure that your share plans have a clean bill of health before your acquirors start their due diligence process.

Whatever the reason, RM2 can help with our EMI Health Check service, and check all aspects of your share plan. We will review your plan rules and other documents, check that the paperwork and processes have been followed correctly for grants and exercises, and confirm that your ERS filings are all up to date.

After our review, we’ll produce a Red Flag report summarising the findings of our review and (to the extent required and possible) potential remedial action.

Contact us on enquiries@rm2.co.uk and we can arrange an initial phone call, free of charge, to discuss your requirements.