Some facts on the Enterprise Management Incentive (EMI) Scheme:
- You grant employees the options to acquire an equity stake at a set exercise price at some point in the future (normally when the company is being bought by a third party).
- EMI allows for options worth up to £250,000 per employee
- If the exercise price is below the market value as at the date the options are granted then the employee will be looking at paying income tax (and possibly NI) on the difference.
- The options can be linked to certain key performance targets and you can be selective about which employees you involve.
- The exercise price is geared towards the value of the company at the time the options are granted, so if the company’s value goes up the employee stands to gain. The cherry on top is that the value uplift will (as things stand) be taxed under the friendly CGT rules (more below).
- There are also qualifying criteria in respect of the employees working week and commitments, most of which I do not anticipate being an issue.
- No tax is ever payable under this scheme until options are exercised.
- There are some costs involved in setting up and administering the scheme but EMIs remain the popular choice in the SME world.