EMI schemes – incentivise your staff and save tax

EMI schemes – incentivise your staff and save tax

It’s increasingly popular for smaller companies to operate tax-advantaged share option schemes, giving key employees the chance to buy shares in the business at preferential tax terms.

Often unable to match the salaries of larger businesses, smaller companies use Enterprise Management Incentive Schemes as a way to attract and retain top talent, incentivising them towards better financial results and hence a higher share value.

The scheme should operate under ‘approved’ HMRC guidelines in order to qualify for the associated tax advantages.

How does it work in an approved EMI scheme?

There is no tax charge on the grant of options. On exercising the options, no charge arises providing the exercise is at market value. On disposal of shares, a capital gain may arise if there’s been an increase in share value.

Can I shelter the gain from tax?

Entrepreneurs Relief is available (subject to qualifying criteria), as is the annual CGT allowance, currently worth £12,000. There are conditions around how long the shares should have been held prior to sale.

What should the company do to qualify as an approved scheme for EMI?

The company cannot offer EMI if it operates in banking, farming, property development, legal services or ship building.

Company assets should be no more than £30m and the company can grant share options of no more than £250k over a 3 year period.

In addition to this, the company should notify HMRC on the grant of any options.

Other considerations

It is important to consider other assets and forms of income which might affect the ability to access the tax reliefs mentioned above. For example, have any other capital disposals been made? Are there any losses realised or brought forward?

We can help you achieve a tax efficient outcome and ensure that your offering as an employer is attractive to both you and your employees.

Please contact [email protected] or call 01527 558539. Take a look at our range of services to see how else we can help your company achieve tax optimisation.

For more info see HMRC.