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Specialist Advice

EMI Schemes

As a start-up, you may struggle to pay market rates and are therefore constantly at risk of losing the employees that you need to develop.

Enterprise Management Incentives ("EMI") were introduced to help small companies.

The legislation was originally introduced in 2000 and the belief was that small, fast-growing companies, particularly in the IT sector, would need a boost to assist in the retention of staff in a highly competitive market.

You can reward your employees for their efforts within the business by offering them share options (right to buy a certain number of shares at a fixed price in your company). 

We have extensive experience in the area and can work with your legal partner and liaise with HMRC to manage the process.

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Frequently Asked Questions

A share option is an agreement that gives someone the legal right to buy a company's shares in the future, but at a price that is fixed today.

If the value of the business is set to increase notably the option holders could make a significant profit when they sell their shares.

If you provide share options to your employees then they do not have to pay the income tax that would normally be charged on the market value of any shares or options granted to them.

Also, if employees are given options under an approved EMI, they could potentially pay capital gains tax at 10% on the increase in value over what they pay for the shares (the option's 'exercise price').

You can claim relief via your tax return, and you will need a S/EIS3 or S/EIS company (or fund manager). You should receive this after your money has been invested, your shares allotted, and the S/EIS company receives confirmation from HMRC it has satisfied all the requirements.

Certain trades are excluded from the EMI. For a group, the activities of all group companies will be treated as a single business. Here are the excluded types of business:

  • dealing in land, commodities or futures, or shares, securities or other financial instruments
  • dealing in goods, otherwise than in the course of an ordinary trade of wholesale or retail distribution
  • banking, insurance, money-lending, debt-factoring, hire purchase financing or other financial activities
  • leasing (including letting ships on charter, or other assets on hire)
  • receiving royalties or other licence fees
  • providing legal or accountancy services
  • property development
  • farming or market gardening
  • holding, managing or occupying woodlands, any other forestry activities or timber production
  • shipbuilding, coal and steel production
  • operating or managing hotels or comparable establishments or managing property used as a hotel or comparable establishment
  • operating or managing nursing homes or residential care homes, or managing property used as a nursing home or residential care home

The qualifying criteria:

  • The gross assets of the company must not exceed £30 million
  • The company must have fewer than 250 employees
  • The company must be independent and not under the control of any other company. Shares in a subsidiary cannot be used in an EMI option, i.e. the shares must be in the parent company
  • Companies may be quoted or unquoted
  • The company must have a ‘permanent establishment’ in the UK

An EMI scheme can help you to:

  • Retain staff and tie them to the future performance of the company
  • Set strategic objective targets for individual employees
  • Provide an alternative to remuneration which is great for businesses in the early stages of growth
  • Employee rewards don't dilute the existing share ownership until a specific event or set future date

  • The option for employees to be a future shareholder and be rewarded for hard work
  • Fix in at an exercise price that will potentially be far below the expected sale price in the future
  • Improve job satisfaction and productivity with an eventual stake in the business
  • Potentially benefit in financial performance and future sales that they helped create
  • No income tax & national insurance payable on exercise (above fixed value) & gain on potential sale tax (entrepreneur's relief)

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