Enterprise Management Incentives (EMIs)
Are you looking to reward your employees in a tax efficient and compliant way? Do you need to retain key staff to succeed in your business?
What are EMIs?
Enterprise Management Incentives (EMIs) are a tax efficient way of rewarding eligble employees, which are designed to assist growing companies in attracting and retaining key staff.
Employees will not normally pay income tax on the grant of EMI options, instead 10% capital gains tax is payable on the increase in the value of the option shares (the option 'exercise price'). The tax savings on setting up an EMI scheme are huge, alternative forms of remuneration would typically attract tax rates as high as 40%.
EMI options are typically of two types, those driven by an:
Exit strategy OR A non-exit strategy
Under an exit strategy a business owner is typically looking to sell their business, but wants to ensure that they retain key staff. It's not uncommon for a business sale to take a couple of years, i.e. the lead time taken to find a buyer and for the sale to complete. The ultimate goal is to encourage key employees to work towards the same end goal as the owner, employees are then rewarded as they can exercise their options and make a profit on the increase in value, when the business is sold.
Owners who are not looking to sell their business but still want to retain key staff will go for non-exit EMIs. It is common to build in performance conditions whereby staff have to meet certain targets before they are able to exercise their options.
Which businesses qualify
The rules surrounding EMIs are complex and you should speak to Dhikr Accountants so that we can check whether your business qualifies. Below we have listed some of the key requirements:
✓ Gross assets of the company must not exceed £30m
✓ Company must have less than 250 employees
✓ It must be an independent trading company
✓ Some trades do not qualify, e.g. farming, shipbuilding
What employees qualify
✓ The employee or director must hold an employment contract with the company
✓ They must work for the company offering the EMI options
✓ They must spend at least 25 hours a week for at least 75% of their paid working time
✓ They can’t have a 'material interest' in the company, i.e. more than 30% of the company
What are the limits
Each employee can hold a maximum of £250,000 of unexercised options in any 3 year period, and they must be capable of exercise within 10 years of being granted.
How we can help?
The rules on setting up a qualifying EMI option are complex. The above information is a summary of some of the scheme rules, but there are many other factors that need to be considered before an EMI scheme is set up. Here at Dhikr Accountants, we have recently set up both exit and non-exit schemes, thus we are best placed to assist you with the setting up of your EMI scheme.
For a simple EMI scheme for 5 or fewer employees we charge a fixed fee of £3,000 plus VAT - our work will cover:
✓ Review of your Articles of Association to assess conformance with the scheme
✓ We will prepare a proposed valuation, which we will agree with HMRC
✓ We will prepare the EMI option agreement
✓ We will prepare the board minutes for approval of the scheme
✓ We will register the scheme with HMRC
For an additional annual fee of £249 plus VAT, we can file your annual return with HMRC. The return covers each tax year and is due by 6 July following the April tax year end.
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