If you want to attract and keep talented people without burning cash, share options are the answer — and for UK companies the Enterprise Management Incentive (EMI) scheme is the most tax-efficient option available. So what is EMI, and how does it work?
What is EMI?
EMI is a government-approved share option scheme that lets qualifying companies grant options to employees with major tax advantages. Employees get the right to buy shares in the future at a price fixed today, so if the company grows in value they share in the upside.
Why EMI is so tax-efficient
- No income tax or National Insurance on the grant of the option.
- No income tax on exercise, provided the options were granted at or above market value agreed with HMRC.
- Gains are taxed under Capital Gains Tax, and EMI shares can qualify for Business Asset Disposal Relief (a reduced CGT rate) even with a small shareholding, as the EMI holding period counts towards the qualifying conditions.
Who qualifies for EMI?
The company must broadly:
- Have gross assets of £30 million or less;
- Have fewer than 250 full-time equivalent employees;
- Carry on a qualifying trade (some sectors, such as banking and property development, are excluded);
- Be independent (not a subsidiary).
Each employee can hold EMI options over shares worth up to £250,000, and the company can grant up to £3 million of options in total.
Getting EMI right
The two things that most often go wrong are the market valuation (which should be agreed with HMRC before grant) and notifying HMRC of the grant on time through the ERS online service. Miss these and the favourable tax treatment can be lost.
How PushDigits can help
We design EMI schemes, agree valuations with HMRC, prepare the option agreements, and handle the annual ERS reporting. See our Tax Planning service or book a free consultation to discuss rewarding your team tax-efficiently.