Enterprise Management Incentive (EMI) Share Option Scheme
An EMI scheme is an effective way of incentivising key employees. Businesses often have certain employees who are key to the overall success of the business, and incentivising these employees can generate growth for the company and protect its value.
An EMI scheme is a government-approved scheme where individuals are granted options to acquire shares in the future based on certain criteria. For example, an “exit-based” EMI scheme would allow employees to acquire shares in the company on a future sale.
EMI schemes protect current shareholders as there is no immediate dilution of share ownership and low risk for the participants as they only pay for the shares if the options are exercised. If the employee leaves the company, the options will lapse.
When the options are exercised, there should be no income tax or National Insurance implications if the market value at the date of grant is paid for the shares.
If the shares have increased in value from the date they are granted to the date of exercise, the company that issued the options can receive corporation tax relief.
When the employees come to sell their shares, they may qualify for Business Asset Disposal Relief (BADR) and pay Capital Gains tax on any gain at 10%.
Practical example
At the date of grant of EMI options, the underlying shares have a market value of £10 per share. The individual is granted options over 1,000 shares with an exercise price of £10 per share.
After five years, the company is subject to an offer of £100 per share. The individual exercises the option and makes a profit of £90 per share, being £90,000 in total.
The £90,000 profit is subject to Capital Gains Tax potentially at a rate of 10% if the conditions for Business Asset Disposal Relief are met.
The company benefits from a deduction of £90,000 from taxable profits.
Get in touch
To speak to a member of the team about EMI options for your business, call us today on 0191 418 6920 or email admin@debere-ne.co.uk.