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Enterprise Management Incentives

Enterprise Management Incentives (EMIs) are tax advantaged share options. Their main purpose is to help smaller, higher risk companies recruit and retain employees, who have the necessary skills and capabilities to help them grow and succeed. Employees are rewarded for helping companies achieve their potential.

General

  • Options are only to be granted to recruit or retain an employee, and not for tax avoidance reasons.
  • The share value for the purpose of the individual limit is the Unrestricted Market Value (UMV), meaning that if the shares are restricted, they are valued as if they were not restricted.
  • If the shares are quoted on the London Stock Exchange (LSE), the market value is based on the prices on the Stock Exchange Daily Official List. If shares are not quoted on the LSE, the company may offer its own valuation and HMRC can investigate the valuation. Alternatively, the company can ask HMRC Shares and Assets Valuation to agree a valuation for the options before they are granted.
  • When the options are granted the employee cannot hold unexercised options in respect of shares with a total UMV of more than £250,000. This threshold includes any amounts invested in any Company Share Option Plan.
  • If an employee is granted EMI options in excess of £250,000 regardless of whether the options have been exercised or released, no tax advantages will be realised.
  • The upper limit of share options offered by any one company is £3 million on the total value of shares, in respect of the unexercised qualifying share options.
  • The shares acquired under the scheme must be fully paid up, irredeemable, non-transferrable ordinary shares. The option must be capable of being exercised within 10 years from the date it was granted.
  • There is no requirement to register the scheme although it is sensible to agree the share value with HMRC prior to any grant. However, HMRC must be notified within 92 days from when an option is granted. This involves completing an EMI1 form including an employee declaration that they meet the working time criteria.

The conditions - Company

  • The company cannot be a 51% subsidiary of another company, or persons connected with that company.
  • Should the company have any subsidiaries, they must be 51% owned (except property management subsidiaries which must be 90%).
  • The company/group gross assets must not exceed £30 million.
  • Options granted post 21 July 2008 must have 250 or fewer full time equivalent employees.
  • The company/group must carry on at least one qualifying trade wholly or mainly within the UK, and this must be on a commercial basis, with the view to making a profit.

The conditions - Employee

  • The employee must be employed by the company whose shares are the subject of the option, or the company’s qualifying subsidiary.
  • The employee is required to work, on average, at least 25 hours per week (if less, 75% of their working time, includes employment/self-employment).
  • The employee and their associates must not hold a ‘material interest’ in the company, defined as owning more than 30% of the share capital or holding rights to more than 30% of the company assets on winding up’.

Income Tax

On the basis that the qualifying criteria are met, generally, no income tax or National Insurance is due on the grant or exercise of the option. If the option is exercised within 10 years of granting, there is usually no tax charge, except when the market value of the option when initially granted (or when it was exercised if lower) exceeds the amount paid for the shares. Detailed provisions are in place for events that disqualify the options. Where a disqualifying event occurs (i.e. employee leaves the company), then the tax advantaged status will only be retained for the first 90 days.

Wise & Co have helped set-up a number of EMI schemes for our clients, please get in touch with us today.

Download the PDF version Tax facts – Enterprise Management Incentives

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