EMI share option schemes update

As part of the 2013 Budget the Government has made the EMI (Enterprise Management Incentives) scheme even more attractive for small and medium businesses in the UK.

At its core, the EMI scheme is a tax-efficient share option plan, suitable for nearly all entrepreneurial businesses looking to grow over the coming years and looking to recruit and/or retain key talent to assist in that growth.  The EMI scheme is designed to incentivise and financially reward key employees for helping small to mid-sized companies achieve their full potential.

Options over shares worth up to £3 million in total (based on the market value of the shares at the time of the grant) can be awarded to any number of employees in the company, with a maximum per employee of up to £250,000.  Any growth in the value of the shares under the option will be exempt from income tax and National Insurance Contributions on exercise. Instead, when the shares are sold, any gains will be liable to capital gains tax (‘CGT’).

As of 6 April 2013 this disposal will now qualify for Entrepreneur's Relief even if left under option for almost the whole period of the holding as is normally the case. This means a significant tax advantage – the option will now attract a CGT rate of only 10% on the first £10 million of gains (as opposed to the normal rates of 18% and 28%).

To qualify for this low rate of tax, there is a 12-month minimum holding period requirement, but now this starts running from the date of grant of the share option, rather than the date of exercise of the share option, as was previously the case.  This is a significant benefit - previously, as in practice most share options were left under option until the company was sold, with the options mostly being exercised on the day of sale of the company, the tax rate was unfortunately much higher (generally at 28%), even when the shares had been under option for perhaps several years.

So now the EMI scheme is of even greater benefit to your employees, thus increasing their incentivisation and further increasing the growth of your company.

Not only is this a tax-efficient scheme, but it is fairly straight-forward to set up, requiring no clearance in advance from HM Revenue and Customs (‘HMRC’). Moreover, from a business perspective, it helps align employee motivation with that of your shareholders.

The statistics continue to show that giving away some shares to your employees in such a scheme rapidly pays for itself, resulting in your business growing more quickly than it would without such a scheme.