Considering Enterprise Management Incentives

Published on 19th December 2018

After a period of some uncertainty, HMRC has confirmed that the Enterprise Management Incentive (EMI) regime will remain unchanged and recent research has served to underline the importance of the scheme.

What is an EMI?

An EMI scheme is an approved employee share scheme which allows employers to offer share options to key employees as a reward. Unlike normal share options, an EMI scheme  allows both the employee and the employer to enjoy tax benefits – if certain conditions are met.

EMIs are designed to help small, high-growth, high-risk companies that are not necessarily cash-rich, but are looking to motivate and retain staff. EMIs allow employers to offer a substantial number of shares to selected employees by issuing options. With an EMI scheme, it is possible for an employee to receive shares without a tax bill arising until the shares are sold. Whilst disposal will attract capital gains tax (CGT), in some circumstances employees may be able to access Entrepreneurs’ Relief, reducing CGT liability to 10%.

For the employer, there is normally no national insurance contribution (NIC) charge when options are granted or exercised, nor when an employee sells the shares. Employer companies also receive a corporation tax deduction broadly equal to the employee’s gains.

Qualifying conditions

To qualify, a company must:

  • have total assets under £30 million and fewer than 250 workers
  • exist wholly for the purpose of carrying on one or more ‘qualifying trades’. Asset-backed trades such as property development, operating hotels and farming are excluded
  • not be under the control of another company. This means that if there is a group of companies, employees must be given an option over shares in the holding company.

It is also necessary for options to be capable of being exercised within ten years of the date of grant, but there does not have to be a fixed date.

For further information and advice on EMIs, and whether such an option might be appropriate for you, please contact us on 01392 211233.