FEATURED Articles27 Oct 2023
Significant changes to the UK's corporation tax rates came into effect from 1 April 2023, and it's essential for businesses to understand the implications, especially if they are associated with other companies.
An Employee Management Incentive scheme is a share option scheme
An EMI (Employee Management Incentive) scheme is a share option scheme for employees of UK based businesses. It’s a government backed scheme that allows companies to reward their employees with share options in an incredibly tax efficient manner for both the employee and the company. They are very useful for start ups where cash is limited but you want to attract, retain and motivate employees over a longer period of time and align their interests with that of the business.
So what are the benefits?
The main benefit of the scheme is that it is incredibly tax efficient. For example, the grant of the option is tax-free and there will normally be no tax or National Insurance contributions (NICs) for the employee to pay when the option is exercised. Similarly, there will normally be no NICs payable by the employer either. Business Asset Disposal Relief (formerly Entrepreneurs Relief) may be available which would reduce the rate of tax on the gain when eventually sold from 20% down to 10%.
Are there any conditions that must be satisfied?
As a government backed scheme, there are conditions that must be satisfied for the scheme to retain its tax-advantageous nature. Each employee can only be granted options up to a market value of £250k and there is a total limit of the value of EMI options in issue to all employees of £3m. The options must be granted over shares in an independent trading company that has gross assets of no more than £30m and must have fewer than 250 employees.
Employees are eligible for EMI options if they spend at least 25 hours per week working for the company or 75% of their total working time. Additionally, the employee must not control directly or indirectly more than 30% of the ordinary share capital of the company. The option must be a right to acquire shares that are part of the ordinary share capital of the company and be fully paid up and not redeemable. The option must also be able to be exercised within ten years of the date of grant.
Once you have decided to go ahead with establishment of an EMI scheme, agreement must be reached with HMRC as to the valuation of the options. This valuation then lasts for 90 days and you have that time in which to set up the scheme and grant your first options to your employees. Once granted you must then register the EMI scheme with HMRC within 92 days of the first grant. You must also file an EMI annual return each year which notifies HMRC of any changes to the options in issue through cancellation, lapses, exercises, etc.
How we can help
At Alliotts we are experienced in dealing with the set up of EMI schemes and can help your company in obtaining the initial valuation from HMRC and registering the scheme and annual administration. Please contact us for more information.
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