EMI Schemes – What Are They and How Do They Work

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What is an EMI scheme?

An EMI scheme is a government scheme that allows you to offer employees share options in the business in a tax-efficient way. This can be used as a tool to motivate employees to add value to the business and also attract the right people into your business.

Now it is important to highlight that there are a number of points to cover before you can qualify for the scheme which we will highlight below.

So let’s start with qualifying business first…

If your business meets HMRC criteria for employee numbers and assets, then you should be fine to qualify. However, the following businesses are excluded from the EMI scheme; farming, leasing, property development, care homes, hotels, banking/insurance and provision of professional services.

For your employees to qualify they must also work at least 25 hours per week for the business.

Why is the EMI scheme so tax efficient?

To put it simply, when your employee receives the shares they will not need to pay income tax. This is unlike other types of financial incentives where they would.

The benefits for the business also include that you will not have to pay National Insurance contributions and you can claim Corporation Tax relief when an employee exercises their option.

Offering an employee a share option

When you offer an employee a share option under the EMI scheme, it is essential that you prepare an agreement that lays out the terms and conditions of the scheme. The following is what you should include:

  • The price the employee will pay for the shares if they exercise the option
  • The rules that apply when the employee leaves the company
  • The type of share you are offering
  • The number of shares the employee can acquire
  • When the employee can exercise the option and acquire the shares
  • The discount you offer on the market value of the shares

As well as including all the details, you will also need to formalise the option agreement before giving the employee the share option.

This will include the following steps:

  • Looking over your Articles and Association
  • Getting consent from existing shareholders
  • Obtaining signatures from both parties
  • Obtaining the agreement of HMRC to ensure you meet the qualifying criteria of the share option scheme and also that your shares are valued correctly (you must do this within 92 days of granting the options)

To find out more about EMI schemes, click here.


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