We answer your top 15 FAQs about Enterprise Management Incentive schemes, designed to attract and retain key employees through tax-advantaged share options.
An EMI (Enterprise Management Incentive) scheme is a tax-advantaged share option scheme specifically designed for small to medium-sized enterprises (SMEs). The purpose is to help companies attract and retain key employees by rewarding them with equity in the business.
Under an EMI scheme, an employer grants share options to selected employees. These options give the employee (the option holder) the right to acquire shares in the company at a pre-determined price at a future date. The opportunity to exercise the share options is usually based on an event in the future such as a sale or performance criteria.
An employee can only acquire shares in your company through an EMI scheme once the exercise event has occurred. An exercise event is stated in the EMI scheme agreement and this could be the sale of the company, achieving certain performance criteria (E.g. EBITDA of £1m) or a length of service. Once the event occurs then the employee can exercise their share options, meaning they acquire shares in your company.
An EMI scheme can be used to incentivise and retain talented employees. Research shows that employees are more likely to feel aligned with the interests of shareholders and the board if they have a tangible interest in the company’s ownership. It can also help recruitment businesses to compete with larger firms when it comes to attracting and retaining top talent.
EMI schemes are only available to SMEs that meet certain criteria, including having gross assets of no more than £30 million, fewer than 250 employees and be an independent trading company (i.e. not controlled by another entity).
There are tax advantages for both the employer and employee under an EMI scheme. For the employer, there are corporation tax deductions available on the exercise of the options, while for employees, there are no income tax or National Insurance contributions payable on the grant or exercise of the options. In addition, the set up costs of the scheme can be offset against corporation tax.
Yes. The options will lapse on the tenth anniversary of the grant date if the exercise event has not occurred.
An employee can be granted up to £250,000 worth of share options under an EMI scheme. EMI options can’t be given to anyone who owns more than 30% of the shares.
No, only employees of the company can be granted share options under an EMI scheme. The employee is required to work a minimum of 24 hours a week or 75% of their working time for the company.
If an employee leaves the company, their share options will usually lapse unless there are specific provisions in the scheme rules that allow for them to be exercised.
Yes, an EMI scheme can be offered to employees who work overseas, subject to certain restrictions.
Yes, it is possible to grant more options to additional employees at a later date. You may incur additional professional fees to issue these share options.
The process for setting up an EMI scheme typically involves the following steps:
The timeline for setting up an EMI scheme can vary depending on various factors, such as the complexity of the scheme and the company’s readiness to implement it. However, on average, it can take between 4 to 8 weeks to set up an EMI scheme, depending on HMRC’s response rate.
Ensure you seek professional advice from an experienced adviser so that the scheme is set up correctly and is compliant with all the relevant regulations.
The cost of setting up an EMI scheme can vary depending on the complexity of the scheme but generally you should anticipate professional fees between £5,000 and £9,000. It’s important to factor in ongoing costs such as annual compliance returns and issuing future grants of options.
For more information on EMI schemes, please download our Guide to Long Term Incentive Plans here.
If you would like to discuss EMI schemes further or have any queries please do get in touch.
