Enterprise Management Incentives (EMI’s)

on November 4, 2021

A share option is the right to buy a certain number of shares at a fixed price, some period in the future, within a company.

Employees can generally exercise their share options – i.e., buy the shares – after a specified period, known as the vesting period. You can make the granting and exercising of share options dependent on reaching certain targets, such as specific sales targets.

When an employee exercises their share options, it’s at the price fixed at the date of grant, i.e., when the options were given to the employee, regardless of the prevailing market price. They can then keep the shares or, if the market price is higher, sell them at a profit.

By ensuring the share option is an EMI the employee will not have to pay income tax or national insurance when they buy the share/ exercise the option if it’s not below market value.

To qualify as a company.

  • The total value of the company’s gross assets must not exceed £30 million
  • The company must be a trading company (i.e., not an investment company)
  • The company must not be a subsidiary of or controlled by another company, however, parent companies can qualify for EMI
  • There must be fewer than 250 employees at the date the EMI options are granted

To qualify as an employee.

  • The individual must be an employee of the issuing company or an employee of a subsidiary (directors included)
  • Employees are required to spend at least 25 hours per week or, at least 75% of their working time, as an employee of the company
  • The employee must not hold more than 30% of the shares of the company

 

You must also ensure the share option meets certain criteria and conditions.

  • The shares must be ordinary, non-redeemable shares
  • The options must be exercisable within 10 years of grant
  • The market value of the option (including all other share options) must not exceed £250,000 per employee, at the date of grant. Any options which exceed this limit will be unapproved share options and will fall out of the EMI regime
  • The terms of the option must be agreed in writing and must prohibit the option holder from transferring their rights. All other terms and conditions, such as the trigger point allowing employees to exercise their options, are flexible and therefore can be decided by the company

How do I get approval from HMRC?

To ensure your scheme falls under EMI, the company can obtain prior clearance from HMRC. Its also necessary to notify HMRC 92 days from the date of the grant. This is an online form that can be completed using your Government gateway ID.

In addition to the EMI scheme, you also may consider some of the below schemes that might benefit you if EMI’s doesn’t apply.

Share Incentive Plans known as SIP

Employees receiving shares under a SIP will not pay any income tax or national insurance if they hold on to the shares for 5 years. You will also not pay any capital gains if you keep them in the plan until you sell them. If you take them out of the plan, keep them and sell later you might have to pay capital gains taxes if their value has increased

There are different ways to get shares under SIP. Employees can get up to £ 3600 of free shares in any tax year. You can also buy shares up £ 1800 or 10% of your income tax-free, your employer can also give you up to 2 free matching shares for each share you buy. You may also be able to buy more shares with the dividend you get from the shares you buy or receive.

 

Save as you Earn (SAYE)

This is a savings-related share scheme where you can buy shares with your savings for a fixed price.

You can save up to £500 a month under the scheme. At the end of your savings contract (3 or 5 years), you can use the savings to buy shares.

The tax advantages are:

  • the interest and any bonus at the end of the scheme is tax-free
  • you do not pay Income Tax or National Insurance on the difference between what you pay for the shares and what they’re worth

Company Share option plan

This gives you the option to buy up to £30,000 worth of shares at a fixed price.

You will not pay Income Tax or National Insurance contributions on the difference between what you pay for the shares and what they’re worth.

Transferring your shares to an ISA

You can transfer up to £20,000 of employee shares into stock and shares Individual Savings Account (ISA) if you have shares in a:

  • Save As You Earn (SAYE) scheme
  • Share Incentive Plan (SIP)

You will not have to pay Capital Gains Tax on any gains you make on your shares if you move them to an ISA.

You must transfer your shares to your ISA within 90 days of when you took out your SIP or SAYE shares.

If you have any questions and would like to introduce any of the above schemes give us a ring. We would be happy to help you answer any questions or deal with HMRC to obtain any clearance required

Filed under  Blog • Business Advice • Tax 

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