Designed for small entrepreneurial companies the Enterprise Management Incentive Scheme (EMI) is a tax-advantaged share option scheme. A company may grant options to selected employees to allow them to acquire its shares over a prescribed period enabling smaller companies to offer the scheme as part of the benefits package to attract and retain employees.
A company can be quoted or unquoted and must meet the following criteria:
To be eligible, an employee must work for the relevant company/group for at least an average of 25 hours per week or, if less, 75 of the employee’s working time. The employee must not hold, directly or indirectly, more than 30% of the ordinary share capital of the company.
Each employee can be granted options amounting up to £250,000.
The options should be granted in writing between the company and the employee, stating the date at which the options are granted, the number of shares acquired and the price at which the options can be exercised.
Formal approval does not need to be obtained prior to beginning the scheme, however the company must notify HMRC within 92 days of the options being granted. HMRC then have a 12 month window following the 92 days to check the grant complies with EMI rules and to formally approve any share valuations in relation to the scheme. We recommend obtaining advance approval.
An annual return must be submitted within three months of the end of the tax year.
No Income Tax or National Insurance Contributions (NIC) are payable on the grant of an EMI option provided exercise takes place within 10 years from grant.
Sale of shares:
On the disposal of the shares acquired under an EMI option, Capital Gains Tax (CGT) may be payable on any return made, in accordance with the current rates of either 18% or 28% depending upon other income and gains.
Entrepreneur’s Relief, which reduces the rate of capital gains tax to 10% on the first £10 million of gains may potentially be available on the disposal of shares acquired pursuant to an EMI option.
The rights attached to the shares can be restricted, such as they can be non-voting. They must be fully paid up and cannot be convertible or redeemable shares.