Q: My business partner and I have had five very successful years and we could not have got where we are without the hard work of a dedicated and loyal team of staff. Now we are looking for a cost-effective way of rewarding our employees. In particular we are considering an Enterprise Management Incentives scheme. Are these popular among SMEs?
A: Since their introduction we have had an increasing number of enquiries asking us to review and assist in the implementation of EMI schemes for corporate and commercial clients. With tax advantages for both the individual employees and the company they are share option schemes that satisfy certain HMRC requirements and also allow companies to grant options on a conditional basis.
EMI schemes have many advantages including no income tax or NI contributions payable on grant of the options, or on exercise of the option provided the exercise price is equal to or greater than the market price of the shares on the date the option was granted. Further, if an individual later decides to dispose of their shares any gain they make is subject to capital gains tax at a lower rate than income tax. Entrepreneurs' Relief may also be available on the disposal of EMI Option Shares, which means any taxable gain would be charged at just 10%.
You do however need to ensure that your company qualifies for an EMI scheme. Firstly your company must be independent, which means it must not have 51% or more of its share capital owned by another company. It must be actively engaged in a trading activity and any subsidiaries it owns must be actively engaged in qualifying trades and be at least 51% subsidiaries. Finally the company must have gross assets of less than £30 million and employ fewer than 250 full time, or equivalent full time, employees.