News
30 September 2008
EMIs help small companies reward key employees
EMI options are tax-advantaged options granted by qualifying companies to any number of employees provided the total value of shares under option does not exceed £3 million (calculated at the date of grant of each option).
They are designed to help small, higher risk companies recruit and retain employees who have the skills to help them grow and succeed. They are also a way of rewarding employees for taking a risk by investing their time and skills to help small companies achieve their potential.
The government's purpose is to enable these companies to attract high calibre individuals, with the aim of benefiting the overall economy.
The key features are:
- No income tax or NICs will be payable on option exercise if the exercise price at least equals the market value of shares at grant.
- The exercise price of EMI options can be set at less than market value (and can be nil, if option shares are not newly issued). This is not the case with HMRC-approved CSOP options.
- The exercise price can be as low as nominal value or nil. This means EMI option plans can be used as the basis of tax-efficient long-term incentive plans (LTIPs) and (strictly share-settled) stock appreciation rights plans.
- Available to independent trading companies with gross assets of no more than £30 million. Certain trades will not qualify. From the date of Royal Assent to the Finance Act 2008, only companies with fewer than 250 employees will qualify for EMI options.
- An employee can hold unexercised EMI options over shares worth up to £120,000 from 6 April 2008.
- With care, employees can be granted EMI options over shares worth £239,999 in a three-year period.
- There is no need to get HMRC approval in advance. Each option is notified to HMRC after grant.
- An EMI share option plan does not need to be adopted, but this can be done if desired. Each EMI option takes the form of a stand-alone agreement (if there is an EMI share option plan, its rules will be incorporated into each agreement).
- Before 6 April 2008, the taper relief period started to run from the date of grant of the option, rather than the time of exercise. This was very attractive. Taper relief was abolished from 6 April 2008. However, "entrepreneurs' relief" is being introduced which may help employees disposing of shares where they own at least five percent of the ordinary share capital of the company.
If you would like to know more about the wide range of corporate employee incentive schemes available, contact Simon Woodings on 01782 205 000.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published.
Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances
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