Participate can range from just one individual to everyone, though commonly it’s offered to senior management. However you cannot take options away from people later unless they have breached the conditions of the option or have left the company. If you’re thinking about setting up an enterprise management plan, there are a few main qualifying areas to be aware of. In general, EMI schemes are a great way to attract staff to small businesses and to reward staff that have helped in the growth of the company. We would be happy to discuss whether an EMI scheme would be the right move for your business and how we can assist with the implementation. Financially, your business gets a Corporation Tax (CT) deduction equal to the difference between the market value of the shares at exercise and the amount your employee paid for them.

What’s the best way to set up your EMI or Unapproved option scheme?

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Up to £250,000 worth of shares can be granted to each individual, and the limit on the total value of options that can be granted under an EMI scheme is £3m. EMI option schemes are designed to help trading companies provide their people with significant tax benefits compared to other share arrangements. EMI schemes help companies with growth potential to recruit and retain employees. When unapproved options are exercised, they attract Income Tax and National Insurance (NIC) on the difference between the market value and the amount the employee pays – in essence, the discount is treated like a salary bonus and taxed as income. There’s no Income Tax or National Insurance, provided the option holder pays no less than the HMRC-approved market value at grant.

What are the typical performance criteria that you might want to consider when designing a scheme?

If the option is exercised within 90 days of a disqualifying event, full income tax and NIC benefits are maintained. If the option is exercised more than 90 days after a disqualifying event, then relief is only given up to the date of the disqualifying event. It is essential that companies and option holders keep their EMI arrangements under regular review. On a sale or takeover, it is possible to have an exchange of options that protects the tax reliefs. It’s critical to bring your management team along on the journey, ensuring they understand the purpose and value of the scheme. What is the company aiming to achieve and how can employees benefit from being part of that growth?

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This means that tax valuations can often apply a large minority discount which may mean people can squeeze more into the £250k individual limit. They could also look to use hurdle shares, a type of shares that only participate over a certain exit value which should have a lower initial value. For an employee to be eligible to be granted EMI options they must work, on average, at least 25 hours per week for the company or spend at least 75% of their total working time working for the company. It is currently viewed as the most tax efficient employee share scheme given that the scheme can be structured such that employees can share in the value of the company without incurring an income tax charge. The specific benefit of EMI options is that they attract less tax than options granted as part of an unapproved scheme. From 6 April 2023, the requirement for employer companies to set out details of any restrictions on the shares that can be acquired was removed.