Looking For Long-term Loyalty: Employee Share Schemes

The Enterprise Management Incentives (EMI) share schemes was introduced in 2000 to help growing companies attract and retain key employees.

It’s the best employee share incentive scheme currently available, allowing employees in a trading company a way to acquire shares at a price fixed at the outset, even though they may not wish to buy them until a later date. No cash is required up front.

What are the tax benefits of the scheme?

Under EMI share schemes, the employee will not have to pay tax or NICs at the time the option is granted or exercised, on the condition that the market value is paid for the shares. But the key is that the market value here is the price paid when the options were granted, not when they are exercised – when they will hopefully have grown in value. If options are granted at a discount or at nil cost, an income tax and (usually) NIC charge will apply on the difference between the market value and the amount paid.

For a market value option, the only tax charge on the employee will be capital gains tax on the sale of the shares. The only cost to the employer is the cost of setting up the scheme. Another benefit to the employer is that there is no need to get advance approval from HMRC, although you must advise them of options granted within 92 days.

Qualifying conditions for the Company

To qualify for the EMI scheme, a company must meet certain conditions and the main ones are that it must:

  • Be an independent trading company, with a place of business in the UK carrying out a qualifying trade
  • Have gross assets not exceeding £30 million
  • Have fewer than 250 full time employees
  • The total value of shares over which EMI options are held cannot exceed £3 million

How do employees qualify?

An EMI scheme need not be an all-employee scheme – it’s available by invitation if preferred. To be eligible, employees must usually work at least 25 hours per week and must not control or beneficially own more than 30% of the shares of the company. Directors can be counted as employees for this purpose. Each individual can hold EMI share options up to a value of £250K.

How can I find out more?

If you feel an EMI scheme could work for you, get in touch with the Johnston Carmichael employee incentives team.  We can evaluate whether your business qualifies, design the scheme for you and work with your lawyers to implement it for your key employees.