EMI Schemes and Share Options Specialist solicitors for EMI schemes and share options in Milton Keynes

Key Benefits of EMI Options

• Attract Top Talent
  EMI schemes make your company more appealing to potential hires by offering them a stake in the future success of the business.
• Enhance Retention
  Employees are more likely to stay with a company where they feel invested, reducing turnover and preserving institutional knowledge.
• Drive Performance
  The promise of share options can incentivise employees to perform at their best, knowing their efforts directly contribute to their personal gain.

Implementing an EMI scheme not only supports your recruitment and long-term retention strategies but also positions your business for sustainable success.

The difference between shares and share options is that shares provide immediate ownership in the company whereas share ​options provide the possibility of share ownership at some point in the future either at a pre-approved price, or on the occurrence of a specified event.

Employees and Shares: two big problems

There are two significant and related problems in providing employee with shares. Firstly there is the possibility of the anti-avoidance tax legislation taxing the shares as an employee benefit. The second is the cost of the shares to the employee: the main way to avoid a tax charge is to require the employee to subscribe at market value, however this is likely to be prohibitive.

EMI Schemes: a solution

EMIs provide a Revenue approved method of facilitating share ownership among employees. We are often asked to draft EMI schemes because of the tax benefits that they offer for employers and employees alike.

At Heald Solicitors we work with accountants in helping our clients establish EMI schemes. We will draft EMI contracts or company EMI rules, advise on the procedures necessary and help the client with completing the scheme.

Efficient Implementation of an EMI Scheme

Implementing an EMI scheme efficiently requires a detailed examination of your goals and objectives for the future, and an understanding of how your business operates. This will allow us to provide you with the best advice, and will allow us to craft a scheme for you smoothly, swiftly, and cost-effectively.

Key Strategies for Efficient Implementation

• Assisting with Scheme design
  We will work with you and your accountants in designing a scheme which complements your business goals. The incentive such scheme provides should serve as a robust tool for both employee retention and motivation.
• Scheme Terms
  We will discuss the core elements of the scheme, such as identifying who will receive options, defining the timeline for when these options can be exercised, and establishing any exercise conditions such as upon sale (sometimes called “exit provisions”).
• Step-by-Step Guidance
  We provide support through every stage of the implementation process by crafting an EMI scheme that ensures coherence and compliance with legal requirements.
• Personalised Meetings
  We can arrange virtual or in-person meetings with you and your chosen managers to provide guidance on the legal requirements for the scheme.

By integrating these strategies and support mechanisms, you will able to implement an EMI scheme that is both meticulous and beneficial, ultimately enhancing employee engagement and corporate growth.

Our package includes:

• Consideration of the statutory rules
  EMI schemes are set up under Schedule 5 of ITEPA 2003. Sometimes it will be necessary to consider whether your company falls within the business categories where EMIs are permitted.
• Application for Advance Assurance
  Where your accountant is not providing this service we can apply to HMRC for advance assurance
• Custom EMI Scheme Rules
  

  These will outline the scheme regulations tailored to your business requirements. We can provide stand-alone EMI agreements where there are only 1 or 2 employees or scheme rules where you may wish to have a number of employees added to the scheme, now or in the future.

• Personalised Employee Communications
  Includes letters and guidance for each participant, that articulate the individual terms and benefits.

• User Friendly Guides
  Separate guides for both employees and employers, breaking down the complexities of the scheme into easy-to-understand language.

Benefits of an EMI scheme

The tax treatment for gains from EMI (Enterprise Management Incentive) options offers a significant advantage compared to unapproved options or cash bonuses. When employees exercise their EMI options, the gains are subject to Capital Gains Tax at the current rate rather than being subject to PAYE.

In addition HMRC has allowed participants in Enterprise Management Incentive schemes to benefit from favourable tax treatment without some of the more onerous terms associated with Business Asset Disposal Relief. Please note that these reliefs are always under review and should be checked when you plan your scheme.

In summary, opting for EMI options can lead to substantial tax savings for employees, providing a powerful incentive over unapproved options or straight forward cash bonuses.

An employee with shares in the business is more likely to stay with you longer and to be more invested in your business success.

EMI scheme eligibility

An EMI scheme can be offered by most independent UK companies but you need to be certain that your company and employees meet the scheme criteria established by HMRC.

General requirements for EMI option schemes include:

• The purpose of the scheme must be to retain or recruit employees and not to avoid tax.

• You may only grant an employee a maximum value of £250,000 in options, based on the unrestricted market value (UMV).
• The most that a company can grant is £3m in unexercised options at any one time, based on UMV.

You must also assess whether your company itself meets the criteria to qualify for EMI.

The key criteria are as follows:

• Your company must be independent.
• If your company has any subsidiary companies, they must also qualify for EMI.
• Your gross assets must not exceed £30m at the time of EMI options being granted.
• You must have fewer than 250 full-time employees.
• Your business must have a permanent establishment in the UK.

• Your business must not have a substantial part of its trading activities, or provide services or facilities for other businesses, in specific disqualifying industries.

• Employees who work for the business for more than 25 hours each week or for at least 75% of their working hours if they work less than 25 hours there are eligible unless they already own 30% or more of the ordinary share capital

If you would like more information regarding setting up an EMI scheme then please contact us.

Unapproved share options

In contrast, unapproved options or cash bonuses are taxed more heavily. These are typically subject to a combination of income tax (PAYE) and National Insurance Contributions—both from the employee and employer—which can cumulatively reach a hefty rate of up to 60.8%.

Having said that it may still be beneficial to have an unapproved share scheme rather than none at all. It may be worth considering the following:

• Benefit in kind
  It may be that for some reason (for example the company is not eligible or the employee isn’t eligible) an EMI is not available. Some of our clients believe it is worthwhile to provide key employees with discounted shares and suffer any tax charge at the time of grant. Tax advice will be needed but it may be a viable option.
• Growth shares
  We draft growth share provisions. Growth shares are shares that only gain value upon the fulfilment of some future and uncertain event. This might be sale of the company for an amount in excess of a pre-set target. The uncertainty inherent in that arrangement is likely to mean that the shares have either a very low value or nil value at the time of grant. Again careful consideration of all the circumstances and tax advice is needed.