What is Enterprise Management Incentives (EMIs)?
Enterprise Management Incentives (EMIs) is an approved share option scheme implemented by the UK government to help small, high-risk, unlisted companies attract and retain key employees. This scheme provides significant tax benefits to employees who receive share options under the scheme and incentivizes them to engage closely with the future success of their employing company.
Key features of the EMIs scheme include:
- Employees of qualifying companies can hold share options worth up to £250,000 free of income tax and National Insurance Contributions (NICs).
- Qualifying companies are generally independent trading companies with fewer than 250 full-time employees and gross assets of no more than £30 million.
- When employees exercise their share options and sell the shares, any gain is generally subject to Capital Gains Tax (CGT), often at a reduced rate when Entrepreneurs’ Relief conditions are met.
Examples
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Tech Startup Scenario: Consider a tech startup with 150 full-time employees and gross assets of £10 million. To attract a talented software developer, the company offers an EMI share option package. The developer’s share options value at £150,000. Upon exercising the options and subsequently selling the shares for a significant profit, the developer only pays CGT, benefiting from Entrepreneurs’ Relief if applicable, rather than income tax.
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Biotech Firm Example: A biotech firm with 100 employees and gross assets of £20 million offers EMI options to a senior scientist worth £200,000. When the options are exercised and the shares are later sold, the scientist enjoys tax savings and is only liable for CGT, again potentially benefiting from Entrepreneurs’ Relief.
Frequently Asked Questions
1. Who qualifies for EMIs?
An employee must be working for a qualifying company, which typically means an independent trading company with fewer than 250 full-time employees and gross assets not exceeding £30 million.
2. What are the tax benefits of EMIs?
Employees are not liable for income tax or NICs when they receive or exercise the share options. Instead, they only pay CGT on any gains upon the sale of shares, often at a lower rate thanks to Entrepreneurs’ Relief.
3. How much can be granted under EMIs?
Employees can be granted share options under EMIs up to a total value of £250,000 at the time the options are granted.
4. Can companies with more than 250 employees participate in EMIs?
No, the EMI scheme is intended specifically for small and medium-sized enterprises (SMEs), with fewer than 250 full-time employees.
5. What happens if a company loses its qualifying status?
If a company no longer meets the qualifying conditions after options have been granted, existing options are protected and the tax advantages are maintained for a specified period.
Related Terms
Share Option Scheme
A program offering employees the right to purchase shares in their employer’s company at a pre-determined price, often after a certain period or upon the achievement of specific milestones.
Capital Gains Tax (CGT)
A tax levied on the profit from the sale of assets or investments, such as shares, that increase in value.
Entrepreneurs’ Relief
A relief allowing individuals selling all or part of their business to pay a reduced rate of CGT on qualified gains.
Online References
- UK Government - Enterprise Management Incentives (EMI)
- Investopedia - Option
- IRS - Employee Stock Options
Suggested Books for Further Studies
- “Taxation of Small Businesses” by Malcolm James
- “Employee Share Schemes” by Geoffrey Stuttard and Sonia Gable
- “Accounting for Investments” by R. Venkata Subramani
Accounting Basics: “Enterprise Management Incentives” Fundamentals Quiz
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