EMI Scheme Explained

The EMI scheme was introduced in 2000 and has since become a favourable option for employees and employers alike. Companies can grant employees share options of up to £250,000 in a 3-year period with no cash cost to the employee.

Employees are given the right to buy shares in the company at the price it is valued at when offered the option. This gives employees the chance to make a hefty profit in the future if the value of the company increases.

Tax benefits of EMI

EMI offer generous tax advantages to both qualifying companies and employees.

• No National Insurance by the employer on either the grant or exercise of the options,
• Corporation tax relief for the employer,
• No Income Tax or National Insurance are payable by the employee on the grant of the EMI option,
• Capital Gains Tax (CGT) is payable on the sale of the EMI options at either 10 or 20%,
• In certain situations, employees can claim Entrepreneurs’ Relief at 10%.

EMI Valuation

EMI valuations should be as low as possible so that employees can maximise their gain when the options are exercised/shares are sold.

Getting a valuation agreed by HMRC’s specialist share valuation division typically takes between 2-4 weeks. Options must be granted before the valuation expires.

QUALIFYING CRITERIA

There are various conditions to be met for both the company and employee to qualify for the EMI scheme. The company must:

•  Be independent (they must not be subsidiary of or controlled by another company)
•  Trading mainly or wholly in the UK
•  Have fewer than 250 full-time employees
•  Have gross assets of £30 million or less
•  Satisfy the gross asset test

Companies will not qualify if they work in excluded activities. These include:

•  Property Development
•  Provision of legal of accountancy services
•  Banking, insurance, debt-factoring or money-lending
•  Ship building, coal or steel production
•  Farming or market gardening
•  Operating or managing hotels, nursing homes residential care homes or managing property used as any of these

Employees will qualify for the scheme if:

•  They work for the company for at least 25 hours per week, or 75% of their working time per week (an employees working time includes employment and self-employment)
•  They do not have a material interest in the business (more than 30% of the share capital of the company)

The above are general conditions relating to the Enterprise Management Scheme (EMI) and each company should be reviewed on a case by case basis.