Orr Litchfield
Solicitors and Business Lawyers
Solicitors and Business Lawyers
The Chancellor’s budget announced on 11th March 2020 included a statement that the Government will launch a review into the Enterprise Management Incentives (‘EMI’) scheme.
Section 2.200 (Review of Enterprise Management Incentives (EMI) scheme) of the Budget states that ‘the government will review the EMI scheme to ensure it provides support for high-growth companies to recruit and retain the best talent so they can scale up effectively, and examine whether more companies should be able to access the scheme’.
What is the Enterprise Management Incentives (EMI) scheme?
The Enterprise Management Incentive (EMI) scheme is a tax-advantaged share option scheme designed for small and medium sized companies. It is a share option scheme that enables companies to attract and retain key staff by rewarding them with equity participation in the business. EMI schemes are ideal for small and medium sized, entrepreneurial companies that might not be able to match the salaries paid by larger companies and/or wish their staff to be incentivised to actively participate in the drive to make the company a success.
What are the main benefits of the EMI scheme?
Currently, the two main tax benefits are income tax and capital gains tax related.
(a) Income tax
No income tax is normally charged upon exercise of the share option; and
(b) Capital gains tax
When the shares (which were the subject of the EMI share option) are eventually sold, capital gains tax is usually charged at a reduced rate of 10%. This is because an employee exercising an option under an EMI option scheme can, subject to the rules, expect to qualify for Entrepreneurs Relief on the capital gain realised on the disposal of the option shares.
It should be noted that the Chancellor’s budget also announced that Entrepreneurs Relief would be significantly curtailed with effect from 11th March 2020 by reducing the lifetime limit for qualifying gains from £10m to £1m (being the level it was originally set at when it was first introduced in 2008). Entrepreneurs’ Relief allows business owners to benefit from a reduced rate of Capital Gains Tax when disposing of all or part of their business provided that the relevant conditions are met. The reduced rate is currently 10%.
EMI schemes are approved by HM Revenue and Customs (“HMRC”). There are currently various conditions that must be met by the employer, employee and the share options themselves in order to qualify for approval. These conditions are not particularly difficult to meet or exhaustive but the tax advantages that can be obtained can be very beneficial to both parties involved.
If you would like to discuss an existing or proposed Enterprise Management Incentive (EMI) scheme or shares options generally, please contact us. We can help you to plan, prepare and implement your share scheme in a way that is right for you and your company.
Contact us
If you would like more information about the Enterprise Management Incentive (EMI) scheme or shares options generally, please contact us by telephone on +44 (0)20 3126 4520 or +45 38 88 16 00 or by email at enquiries@orrlitchfield.com
Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full Legal Notices on our website.
