What are Enterprise Management Incentive schemes (EMIs)?
An Enterprise Management Incentive scheme (EMI) is a government-approved, tax-advantaged employee share scheme, designed to help small to medium-sized businesses attract and retain quality personnel. Like similar initiatives, EMIs give employees the right to acquire shares in a business, but under EMI rules, companies don’t grant shares immediately. Rather, employees are given the option to buy shares at some point in the future at a predetermined price. This is often referred to as the option grant.
The idea is that over time, the value of the shares will increase in line with the business, allowing employees to buy them at a knock-down price when they eventually exercise their options (purchase their shares). Throw in a few tax-friendly perks, and it’s easy to see why EMIs are such an attractive proposition.
Is an Enterprise Management Incentive scheme (EMI) the right choice for my business?
EMIs are a smart, tax-efficient way for growing businesses to incentivise their staff, without breaking the bank. But EMIs are just one of several government-approved share schemes available, and they may not be right for everyone. So before going any further, here are a few important things to consider:
EMIs are specifically aimed at small to medium-sized enterprises here in the UK, so to qualify, your company must have a UK permanent establishment, fewer than 250 full-time employees and assets of £30 million or less.
You can grant each individual up to £250,000 worth of shares in a three-year period, with a £3 million upper limit for the company as a whole.
With EMIs, you control when your employees buy their shares by creating ‘exercise windows’. These usually coincide with liquidity events, such as a potential takeover or a company going public.
Under EMI scheme rules, employees typically have a maximum of ten years to exercise their options.
What are the benefits of Enterprise Management Incentive schemes (EMIs)?
EMIs are a great way for you to reward your staff and compete in a crowded job market, and with minimal set-up costs and tax breaks on both sides, it’s a win-win situation. Here are a few tangible benefits you and your employees can enjoy when you launch an EMI scheme:
EMIs are designed to be tax-efficient to help smaller businesses grow more rapidly, so unlike other initiatives, you only pay tax on the value of the schemes when they’re sold, not when they’re awarded. Plus, you’ll most likely pay capital gains at the lower rate of 10% instead of the usual 20%.
EMIs also include big tax breaks for your employees. They won’t have to fork out any Income Tax or National Insurance contributions on the grant or exercise of the options, and any growth in the value of the shares will be treated as capital gains, effectively slashing their tax bill in half.
EMI schemes can give your business a significant leg up in the job market too, particularly when you’re competing against larger, more established competitors. That’s because offering potential employees the chance to acquire a piece of your business is a proven way to capture the best, most qualified candidates.
EMIs are also a great way to motivate and retain your existing employees. They demonstrate your faith in their ability, tie their goals to those of the wider company, and provide a long-term incentive for them to remain with your organisation.
EMIs can also come in handy if you’re thinking about selling your business. By giving key employees an incentive to stick around until the acquisition is complete, you’ll be able to negotiate a smoother, more successful transition.
EMIs are a tax-friendly, cost-effective way to attract the best talent, reward hard work and encourage a loyal, meritocratic culture. And for small business owners looking to maximise their recruitment, get the most out of their staff and grow their company, they could be the ideal solution.
Talk to us about EMIs
EMIs are just one of four government-approved employee share schemes available to UK businesses, alongside Save As You Earn (SAYE), Share Incentive Plans (SIPS), and the Company Share Option Plan (CSOP). For advice on these or any other savings or investments, please get in touch and speak to one of our specialist accountants.