In todays ever challenging recruitment market top talent is hard to find, nurture and retain long term. One effective way to attract and retain top talent while promoting business growth is through the Employee Share Option Plan, commonly known as the Enterprise Management Incentive (EMI) scheme. In this blog, we will delve into the benefits of EMI schemes and provide valuable insights for UK business owners looking to leverage this powerful tool to boost their companies.
What is an EMI Scheme?
The Enterprise Management Incentive (EMI) scheme is a tax-advantaged employee share option plan designed to help small and medium-sized businesses in the UK attract and reward employees with shares in the company. EMI schemes are an excellent way to align employees’ interests with those of the business owners and shareholders, fostering a sense of ownership and commitment to the company’s long-term success.
Advantages of EMI Schemes for Business Owners
A. Attract and Retain Top Talent: In today’s competitive job market, attracting and retaining skilled employees is crucial for business success. EMI schemes offer a powerful incentive by granting employees the opportunity to purchase shares in the company at a predetermined price, creating a sense of loyalty and motivation to drive the business forward.
B. Tax Advantages: One of the most attractive aspects of EMI schemes is their favourable tax treatment. Employees typically receive share options at a discounted price (based on the estimated future value as we utilise today’s value), and any gains made upon selling those shares are subject to capital gains tax, which can be significantly lower than income tax rates. Additionally, qualifying for EMI status can reduce the employer’s National Insurance contributions, making it a cost-effective option for rewarding employees.
C. Aligning Interests: When employees become shareholders, their interests align with those of the business owners and shareholders. This shared sense of ownership fosters a collaborative and dedicated work culture, which can result in increased productivity and enhanced overall performance.
Eligibility for EMI Schemes
To be eligible for the EMI scheme, your business must meet certain criteria:
A. Size: The company must have fewer than 250 full-time employees.
B. Trading Activities: The business should be engaged in trading activities rather than non-trading activities, such as investment or property development.
C. Independent: The company must be independent and not under the control of another company.
D. Gross Assets: The gross assets of the company must not exceed £30 million.
E. Qualifying Trades: Certain trades are excluded from EMI eligibility, such as banking, farming, and some financial services. A definitive list can be found HERE.
Fresh thinking, smart support.
How can our experts helpSetting Up an EMI Scheme
There a are number of steps to follow to ensure the EMI scheme is set up and registered correctly:
A. Valuation of Shares: Accurate valuation of shares is crucial for setting the right exercise price. Consulting with a professional valuer can help ensure compliance with HM Revenue and Customs (HMRC) guidelines.
B. EMI Documentation: Drafting clear and comprehensive EMI documentation is vital to outline the scheme’s terms, conditions, and the rights and obligations of the participating employees.
C. HMRC Notification: Inform HMRC about the establishment of the EMI scheme within 92 days to ensure tax-advantaged treatment.
Incorporating an Enterprise Management Incentive (EMI) scheme into your business can be a game-changer, helping you attract and retain top talent while promoting overall growth and success. In my opinion, it is one of the most effective and tax advantaged retention strategies.
We have a wealth of experience in advising clients and setting up EMI schemes. If you would like further information or help simply hit the talk to us button now.