EMI Share Scheme

Yes and No. It is widly accepted that EMI schemes have demystified employee share schemes.

An EMI scheme is not however easy to implement without professional support. It is advised you work with a partner who understands the qualifying criteria, the legal requirements and the tax implications on both the employer and the employees. 

When you working with someone who has the right knowledge and experience of setting up EMI’s previously , the process is relatively straight forward. 

Areos are ready to assist your business in setting up your EMI scheme.

An EMI scheme offers real tax benefits on both employers and employees which can result in:

For employers

• No tax cost (subject to certain conditions).
• No employer’s National Insurance Contributions (“NIC”) on either the grant or exercise of the options (provided certain conditions are met).
• Corporation tax relief on the difference between the market value of the shares at exercise of the options (i.e. when the shares are acquired) and the option price paid. This can provide a substantial windfall to the business/shareholders on a sale.

For employees:

• Lower tax costs than cash/non-EMI arrangements.
• No income tax and no employees’ NIC on either the grant or exercise of the options (provided certain conditions are met).
• Capital Gains Tax (“CGT”) on the growth in value of the Growth Shares.
• Most EMIs will start to accrue the 12 month holding period for entrepreneurs’ relief (“ER”) from the date of grant of an EMI option (resulting in a 10% (as opposed to 20%) rate of CGT). There is also no need for a 5% holding under EMI in order to qualify for ER; so even small minority holdings of Growth Shares can potentially qualify for the 10% rate of CGT.

Whilst there is flexibility for companies wanting to enter EMI schemes, there are significant restrictions too, and the legislation is highly complex. For these reasons you need to choose the right partner to help you implement an EMI scheme.

Disadvantages of EMI include:

• some trades are excluded from using the EMI Scheme altogether, including banking, farming, property development, legal or accountancy services
• companies are also limited to issuing EMI options over shares with an aggregate MV of £3m or less
• an employee is limited too, to holding unexercised EMI options over shares with an aggregate MV of £250,000 (including unexercised company share option plan options), and receiving EMI options over shares worth a maximum of £250,000 in any three-year period.

If these limits are exceeded, the excess does not attract EMI tax advantages.

Also, a number of events can disqualify unexercised EMI options, including:

• the company ceasing to be independent (e.g. where it becomes a 51% subsidiary of another company)
• the company ceasing, or failing to begin, a qualifying trade
• some variations to terms of the options, or to the share capital of the issuing company
• the employee being granted Company Share Option Plan options in excess of the £250,000 limit.

The first steps to creating an EMI share scheme are to ensure that your company meets the qualifying criteria.

Areos have many years of implementing EMI schemes. For a free no obligation introduction conversation simply fill in the form below or call Areos today.