EMI: Now Bigger and Better
It has been a good year for the enterprise management incentive (EMI) scheme.
EMI is a tax-advantaged scheme promoted by the government to encourage share participation by employees. It is based upon the grant of an option to an employee of a trading company. Provided the price for the shares is no less than their market value at the date the option is granted, there will be no tax when the shares are acquired by the employee exercising the option. Furthermore, the gain the employee makes on the shares will be subject to capital gains tax, rather than income tax, which usually results in less tax payable by the employee.
EMI schemes are popular with employers as:
- They can be very effective in motivating and retaining key staff;
- They enable value to be received by employees without any NICs or PAYE; and
- The gain the employee makes when he acquires the shares can be deductible for corporation tax purposes, even though here is no actual tax to pay by the employee.
There were three pieces of heartening news for EMI announced in the last 12 months, namely:
- The value of shares over which EMI options can be granted was increased from £120,000 to £250,000 per employee with effect from 16 June 2012;
- For EMI options exercised on or after 6 April 2012, the employee can qualify for entrepreneurs' relief (which can result in capital gains tax at 10%, rather than 18% or 28%) even if he holds less than 5% of the employing company's share capital; and
- The one year minimum holding period in order to qualify for entrepreneurs' relief will run from the date of grant of the EMI option (not when it is exercised and the shares acquired) where the relevant shares are sold on or after 6 April 2013. This new rule, announced in December 2012, is very useful as many employers want EMI options to be exercisable only when the whole company is being sold (so-called exit driven options).
If you have any questions about EMI or any other share arrangements, please contact Nasim Sharfon 01482 337336 or email Nasim on firstname.lastname@example.org .
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.