EMI Share Option Schemes

Rules

There are strict rules in place relating to the company, namely that it must:

1. Not have gross assets of more than £30 million;

2. Cannot be a company with certain sectors (as described above);

3. Be independent – it must not be a subsidiary or be controlled by another company;

4. Be established permanently in the UK;

5. Not have 250 or more employees; and

6. Use ordinary shares – although such shares do not need to have full rights attached to them (e.g., they may have no voting rights).

Benefits for the employer and employees

EMI Schemes are advantageous to retain key employees and reward them for investing their skills and time in the company’s growth, without the employees being lumbered with a significant tax charge which would happen if the EMI Scheme is not in place and the shares are gifted or acquired at less than their full value at the time of acquisition.

The employer benefits because employees are highly incentivised to work hard and efficiently because they reap the rewards of this work at a time in the future. Everyone benefits from the future ‘exit event’ when the shares are exercised.

Tax benefits

Setting up an EMI Scheme comes with enormous tax benefits for both the company and employee(s):

Company

It most likely will be able to claim a deduction against corporation tax for the full amount of an employee’s option gains.

Employee

As long as the option exercise price is not less than the market value of the shares at the time of the granting of options:

There is no income tax or national insurance payable on any financial benefit received by the employee; and Capital gains tax (CGT) will be due on option gains when the shares acquired through exercise of EMI options are eventually sold. CGT is normally payable at 20% generally for a higher-rate tax payer, but with an EMI scheme in place CGT is charged at a reduced rate of 10%.

How we can help

If you would like to give shares in your business to your UK-based employees or contractors and would like to set up an EMI Share Options Scheme, we would be happy to help and discuss a suitable fee mechanism to suit your needs.