What is EMI?
A share option plan targeted at smaller companies which combines flexibility with high tax efficiency.
Research published by HM Revenue & Customs (HMRC) found that 79% of employers interviewed believed that EMI had helped them to retain key employees and to improve staff motivation.
71% of employers felt that EMI had improved overall company performance.
Why an employer might consider an EMI plan?
- Effective reward linked to business performance and which may be taxed at a significantly lower rate than a cash bonus
- Retention tool, assuming the option can only be exercised if the employee stays with the company
- Education tool since employee ownership encourages employees to understand the connection between their contribution and the performance of the company.
How does it work?
Selected employees are granted an option to buy shares, paying a fixed price if they do so (exercise the option).
Often the price will be the value of the shares when the option is granted.
EMI benefits from an extremely advantageous tax treatment on any growth in share value between grant and exercise.
Could anything affect the tax treatment?
Favourable tax treatment can be lost for gains following a disqualifying event.
The main disqualifying events are:
- the company becoming controlled by another company
- the company’s trade ceasing to qualify
- the optionholder ceasing to work for the company or sufficient hours a week
How long does it take?
- You should normally allow 4-6 weeks, but it might be done more quickly if necessary. The limiting factor is often obtaining HMRC agreement to a share value.
How much does it cost to receive professional advice to create an EMI option plan?
- The cost will depend on how much help is required, but it is normally possible to agree a fixed cost.
How to find out more
- Please contact us for an informal discussion, without cost or commitment.
This is a general guide only and should not be treated as advice
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