EMI Scheme - Employee Incentive

Enterprise Management Incentive Schemes, also known as an EMI scheme are share options that can be granted by SMEs to employees which have favourable tax treatment.

This tax treatment can extend to both the employee and to the company. An EMI scheme can allow employees to receive bonuses through dividend payments and potential capital income on the sale of the shares in the event the company is sold.

Does my company qualify?

EMI options must be granted by a qualifying independent trading company. For a company to qualify, the company must not have gross assets of more than £30 million and have fewer than 250 full time employees. Companies must also undertake a qualifying trade. This for example unfortunately excludes dealing in land, financial instruments and banking.

Do my employees qualify?

For an employee to qualify, they must work for the company for at least 25 hours per week and if they work less than this, they must spend 75% of their working time working for the company.

Are there any other restrictions?

EMI options must comply with the relevant statutory requirements in order for them to qualify for favourable tax treatment.

Without setting out lengthy passages of legislation, some key points are:

  • a company cannot grant EMI options worth over £3 million and cannot grant more than £250,000.00 worth (in a 3 year period) of unexercised EMI options to one individual
  • the option must be capable of being exercised within 10 years of the EMI option being given to the employee
  • EMI options can be linked to a prospective sale of the company or be performance based
  • EMI options must be notified to HMRC once granted
  • there must be a written EMI option agreement between the company and the employee

EMI schemes operate under European Union state aid rules and require the permission of the European Commission. Some will be aware of the recent lapse in permission causing many companies to put on hold the granting of EMI share options to their employees. Thankfully the European Commission has from the 15 May 2018 (http://europa.eu/rapid/press-release_MEX-18-3803_en.htm) approved the United Kingdoms EMI scheme again.

The current permission granted by the European Commission will continue until the United Kingdom leaves the European Union.

This article is not intended to form legal advice nor form any basis to be relied upon.

If you would like to discuss EMI schemes or are considering granting an EMI scheme please contact the Corporate and Commercial team for further information.

Jordan Dowe

Jordan Dowe

Trainee Solicitor

Jordan is currently studying part-time for a Masters in International Business Law at City University of London. Jordan also has previous experience working within a commercial in-house legal department.

Read more about Jordan

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