We know first hand how crucial it is to attract and retain the best talent. They say that a company is only as good as its people, but people need motivation. That’s where Enterprise Management Incentives (EMI) Share Options Schemes come to help.
EMI Schemes essentially allow companies to grant share options to their employees. Granting share options means granting the employee the right to purchase these shares in the future at an agreed-upon price. Typically, the employee will exercise this right and actually buy the shares once the company is sold, selling them straight away at market price at a profit.
Under EMI, this mechanism is tax-efficient in a number of ways…
First off, granting options doesn’t immediately affect the employee’s income, therefore there is no tax liability at this stage.
If a company grants the shares at market price, employees will be exempted from income tax even when they buy the shares. If the options are granted at a below-market price, income tax will only be payable on the discount.
The employee is only subject to a 10% Capital Gains Tax on the profit between the option price and the sale price.
The cost of setting up an EMI Scheme is an allowable expense of the business. It is therefore deductible against corporation tax.
In order to be eligible for the scheme, the value of the options granted cannot exceed £3m in total. Each employee’s options cannot exceed £250,000.
Additionally, not all companies and not all employees are eligible for the schemes. Get in touch for more info.
First, you’ll need a company valuation to validate the scheme with HMRC.
At Ignition, we’ll start by completing the initial valuation of your company and then advise you on the scheme that is more suitable to your business and selected employees, making sure it stays tax-efficient for both parties.