Enterprise Management Incentives (EMIs)

Definition

Enterprise Management Incentives (EMIs) are a government-approved employee share scheme in the United Kingdom, designed to help smaller companies attract, retain, and reward employees by offering them tax-advantaged share options. EMIs allow employees to acquire shares in their employer company in a tax-efficient manner. The scheme is particularly targeted at high-growth and entrepreneurial companies.

Examples

1. Tech Start-Up:

   • A small tech start-up offers EMIs to key software developers as part of their compensation package to attract top talent. Each developer receives the option to buy shares at today’s price, even if the value increases in the future.

2. Biotech Company:

   • A biotechnology firm provides EMI options to its researchers, allowing them to own a part of the company. This not only aligns their interests with the company’s growth but also provides a tax-efficient way to reward their contributions.

Frequently Asked Questions

What companies are eligible to offer EMIs?

To qualify for EMI, a company must:

• Be independent and carry out a qualifying trade.
• Have gross assets of no more than £30 million.
• Have fewer than 250 full-time equivalent employees.
• Be permanently established in the UK.

What are the tax advantages of EMIs?

For employees:

• No income tax or National Insurance contributions (NICs) on the grant of the option, provided the exercise price is at least the market value at the date of grant.
• Potential for significant Capital Gains Tax advantages upon the sale of shares.

For employers:

• Corporation Tax relief on the difference between the market value of the shares when the option is exercised and any amount the employee pays for them.

Can all employees be granted EMIs?

No, there are specific criteria:

• Employees must work at least 25 hours per week or, if less, at least 75% of their working time in the company.
• The maximum value of shares over which a single employee can have EMIs is £250,000 at the date of grant.

When do the options granted under EMI become exercisable?

This can vary depending on the terms agreed upon between the company and the employee. Often, options become exercisable upon achieving certain performance criteria or remaining with the company for a specified period.

What happens if an employee leaves the company?

If an employee leaves the company, the treatment of their EMI options depends on the terms set out in the option agreement. Options might lapse, be exercisable for a limited period, or be treated in another agreed-upon manner.

Related Terms

• Stock Options: Contracts that give employees the right to buy shares of the company at a predetermined price.
• Capital Gains Tax: Tax on the profit made from selling certain assets, including shares.
• Qualifying Trade: Trade not explicitly disqualified by legislation, important for EMI eligibility.

Online References

• HMRC: Enterprise Management Incentives
• The Institute of Chartered Accountants in England and Wales (ICAEW): EMIs
• British Venture Capital Association (BVCA): Guide to EMI Schemes

Suggested Books for Further Studies

1. “Taxation of Employee Share Schemes” by Donald Drysdale.
2. “Employee Share Schemes” by David Pett.
3. “Employee Incentives” by Mark Ife and Carolyn Raimonde.

Accounting Basics: “Enterprise Management Incentives (EMIs)” Fundamentals Quiz

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