EMI schemes reviewed
Many of us are familiar with, or may have adopted Enterprise Management Incentive (EMI) Schemes. Typically around 4000 companies grant EMI options each year.
For those who are not, they are flexible share option schemes for employees who work more than 25 hours per week, and give generous tax advantages for employees. If EMI options are granted at market value, employees pay no income tax or national insurance contributions on any increase in share values between the date the options were granted and the date the options were exercised. HMRC will agree the market value for the shares in advance of a grant to remove any guesswork. Once options have been exercised (any conditions having being met), gains arising from disposal of the shares are normally subject to capital gains tax (CGT). Some employees may be eligible for a reduced (10%) CGT rate through Business Asset Disposal Relief, if there is a period of two years between the date an option was granted and the disposal date of the shares. There is also corporation tax relief for employers. This means cash-constrained small employers can offer more attractive remuneration packages, using shares, helping them recruit and retain skilled employees. All in all it is a very attractive package, and of course, it comes with a host of restrictions to prevent abuse.
As part of the review announced at Budget 2020, the government published an EMI consultation at Budget 2021. Normally, the message would be “get in quick before the rules change”.
However, this consultation and call for evidence, which closed in May this year, was said to be about whether and how to expand the current EMI scheme to ensure it offers effective support for high-growth companies seeking to recruit and retain key employees.
In particular, the government was seeking views on:
whether the current scheme is fulfilling its policy objectives of helping Small and Medium Enterprises (SMEs) recruit and retain employee
whether companies that are ineligible for the EMI scheme because they have grown beyond the current qualification limits are experiencing structural difficulties (i.e. in the labour market) when recruiting and retaining employees
whether the government should expand the EMI scheme to support high growth companies and how
whether other forms of remuneration could provide similar benefits for retention and recruitment as EMI for high-growth companies
As a ‘discretionary’ scheme, EMI options can be offered to individual employees at the discretion of the employer. An employer may grant qualifying share options up to a value of £250,000 per employee in a three-year period. The total market value of unexercised qualifying share options a company may grant under EMI cannot exceed £3 million. To qualify for EMI, a company must, at the relevant time, have:
less than £30 million in gross assets
fewer than 250 full-time employees and
carry out a qualifying trade (many activities are excluded, such as banking, professional services, property development, the hotel trade, operating care homes, farming and a host of others)
A company must also have a permanent establishment in the UK and must not be a 51% subsidiary of another company.
No news yet, crystal ball time, but watch this space. The hope is that the government will increase the size of companies which can qualify under the scheme and reduce the number of exclusions and restrictions.