What are the benefits of Enterprise Management Incentive (EMI)?

The Enterprise Management Incentive (EMI) offers generous tax incentives to businesses and their key people.

This can help smaller companies, who might not be able to match salaries paid by bigger firms, keep valued staff.

A company can grant share options up to the value of £250,000 per employee in a three-year period. For many firms which need specialist staff, it is a way to reward them and keep them loyal as the business grows.

This will allow employees to sell their shares at a later date and benefit from the success of the company that they have helped to build.

How does it work?

A company with assets of £30 million or less may be able to offer Enterprise Management Incentives (EMIs).

Under the scheme:

• There will be no Income Tax or National Insurance if the shares are bought for at least the market value they had before being granted the option.
• Income tax and National Insurance only become payable if there was a previous discount on the market value of the shares, which equates to paying the difference between what was paid and what the shares were worth.
• There is also no CGT payable on the grant or exercise of an EMI option, but it may be payable on any gain following the sale of the option shares
• Subject to the satisfaction of the relevant criteria by the company and the employee, a Corporation Tax deduction may also be available when the EMI options are exercised.

Not all businesses can qualify for the EMI and HMRC says those excluded include:

• Banking
• Farming
• Property development
• Provision of legal services
• Shipbuilding

Recent changes to EMI

During the pandemic, HMRC extended the period for which an agreed valuation of shares to be used for EMI options remained valid, provided there were no material changes in the meantime, from 90 days to 120 days.

Now the tax authority has announced that the period will revert to 90 days at the end of the year. From 1 December 2022 onward, agreements issued on or after that date will be valid for 90 days only.

Are you interested in providing EMI share schemes to your team? Speak to us to find out how we can advise you.