Enterprise Management Incentive Scheme to continue after Brexit transition period ends


Craig Rothnie

Craig Rothnie

Tax Manager


Any business making use of Enterprise Management Incentives (EMI) will have been following the Brexit talks closely. An EU scheme, EMIs allow entrepreneurial and growing businesses to attract and retain key staff by rewarding them with a future equity stake in the business. Originally it was anticipated that EMIs would expire on 31 December 2020, but HMRC has now confirmed that the EMI scheme will run under UK law, after the Brexit transition period ends.

Could an EMI review be on the cards in the Spring Budget 2021?

The certainty that the EMI Scheme will continue to be available, at least in the short to medium term is helpful, but we should also cast our minds back to the March 2020 Budget. Hidden in the documentation it was noted that the Government would review the EMI Scheme to ensure it provides support for high-growth companies to recruit and retain their best talent so they can scale up effectively. Amongst other things, it stated that the review will examine whether more companies should be able to access the scheme. This was delayed due to the coronavirus pandemic but it would be reasonable to assume that it will come back onto the agenda at some point.

What can we hope for?

Currently, there are various restrictions on which companies can grant EMI options and which relevant employees can also be granted options. The Government has not made any indication on how exactly the EMI Scheme could be amended to help support high-growth companies, but there are a few different ways that this could be done.

  • Certain limits could be extended - For example, the maximum gross assets (£30m), maximum individual (£250k) and company limits (£3m) may look to be extended by the UK government. This would broaden the scheme and potentially allow a significantly larger number of companies the ability to grant EMI options, and allow for higher value awards.
  • Scope for employee time working requirement could be extended - At present, employees that wish to participate in an EMI scheme are required to meet the “working time requirement” – which must be more than 25 hours a week or 75% of their working time (if lower). This requirement could be extended to include more part-time or seasonal workers, which would be a popular change amongst many!

Tax advantages of the EMI scheme

One of the biggest benefits of the EMI Scheme - so as long as there’s two years from the date of grant to the sale of the shares, and the option holder is still an employee or officer of the company -  is that it can reduce the Capital Gains Tax liability on a future sale of shares to as low as 10%. The UK Government has however provided a report on Capital Gains Tax which recommends a significant increase in capital rates from April 2021 – but time will tell if these proposals will be implemented.

Act now If you’re considering an EMI scheme for your business

Even with the helpful clarification from HMRC that the scheme will continue to be available under UK Law, our view continues to be that if you are considering EMI option awards then you should act without delay.

Benefits of reviewing your management incentive plan

Commercially, there are also various other reasons to be reviewing your current management incentive plan (including EMI) agreements right now – a few of which are outlined below:

  • Previous grants may be “underwater”, for example, the previously agreed strike price for vesting may be significantly higher than the current market value
  • The current financial hurdles or performance criteria for vesting may not be relevant anymore, given the event of the global pandemic. This may mean that the purposes of the option grant (i.e. to retain and incentivise employees) may not be working as anticipated. There is potentially an opportunity here to reset (cancel redundant options and grant new ones)
  • Many options are exit only. Given that future exit may be further down the line than had been previously anticipated, it may be worth thinking about options that can be exercised once vested or performance conditions have been met. This may be difficult to achieve through an existing plan, however new grants and parallel options should be considered here

Get in touch

It should be noted that care should be taken when updating your current management incentive plan to ensure no unwanted consequences arise. If you have any further questions or would like to discuss the points mentioned above, please don’t hesitate to get in touch with myself, a member of our Entrepreneurial Taxes team or your usual Johnston Carmichael adviser.