EMI/Share Options
Accounting for EMI Schemes
Enterprise Management Incentive (EMI) schemes, also known as EMI option schemes, provide tax-efficient ways for companies to incentivise employees through share options. These government-backed programmes offer significant for both employers and employees, and even generous tax advantages when properly structured
Setting up an EMI scheme requires specialised accounting expertise. Our accountants will help you determine if your company is eligible, as not all businesses qualify. They’ll assist with valuing your shares correctly, which is crucial since HMRC must agree this valuation before options are granted.
Experienced Accountants for EMI & Share Options
Our accountants can also help structure the scheme to maximise tax benefits while ensuring compliance with all relevant regulations. They’ll also guide you through necessary documentation including:
- Option agreements
- Board minutes
- EMI notifications to HMRC
Understanding and adhering to EMI scheme rules is crucial for compliance and proper documentation. These rules provide flexibility in managing EMI options and highlight the importance of timing and conditions under which options can be exercised, as per HMRC’s guidance.
Professional guidance is essential for navigating the reporting requirements. Our accountants ensure you meet the deadline for notifying HMRC after granting options and will handle annual returns.
Tailored Pricing to Meet Your Needs
We understand that every business has unique financial requirements. Our pricing is tailored based on the specific services you need to achieve financial clarity. Contact us to discuss a customised pricing plan that fits your business.
The Role of EMIs
EMIs serve as powerful tools for attracting and retaining talented staff. You can offer employees share options up to £250,000 within a 3-year period, giving them a stake in your company’s future success.
EMI options provide significant tax advantages compared to standard share schemes. When structured properly, employees typically pay no Income Tax or National Insurance when exercising their options. Instead, they’ll only pay Capital Gains Tax when they sell the shares, often at a reduced rate.
Capital gains tax (CGT) applies at a lower rate for shares held longer than 24 months, especially for options that qualify for Business Asset Disposal Relief (BADR), making EMIs highly tax-efficient for both employees and businesses.
To qualify, your business must:
- Have gross assets under £30 million
- Have fewer than 250 employees
- Not operate in excluded industries
Employees must work at least 25 hours weekly or 75% of their working time for your company. Options must be exercisable within 10 years of being granted.
Our EMI Scheme Services
We provide comprehensive support for setting up and managing EMI schemes tailored to your business needs.
Our team helps determine if your company qualifies as a qualifying company for EMI. We assess your gross assets to ensure they don’t exceed £30 million and verify other eligibility requirements.
We design EMI options that align with your business goals and retention strategies. Our experts craft option agreements that protect your company whilst providing attractive incentives for employees.
Key services include:
- Eligibility assessment for your business
- Valuation services for EMI scheme implementation
- EMI option agreement preparation
- HMRC notifications and approvals
- Tax advice for both company and option holders
As a tax advantaged scheme, EMI offers significant benefits. We guide you through all tax implications and ensure proper documentation.
We handle the complex paperwork and legal requirements whilst you focus on running your business. Our process is efficient, with clear explanations at every stage.
Our ongoing support ensures your EMI scheme stays compliant with changing regulations. We provide annual reviews and updates to maximise the benefits of your scheme.
How EMI Options Are Granted
Options Grant Process
To grant EMI options, your company must first confirm eligibility. The company must be independent, with gross assets not exceeding £30 million, and fewer than 250 full-time employees.
You’ll need to determine a fair market value for the shares. This value forms the basis of the option price. Many companies set the exercise price at actual market value to maximise tax advantages.
Next, prepare an option agreement documenting:
- Number of shares offered
- Exercise price
- Vesting conditions
- Exercise conditions
The date of grant is crucial as it influences tax treatment and regulatory reporting. Options must be reported to HMRC within a specific timeframe following the date of grant, and this date is essential for understanding the time limits for exercising options and capital gains tax implications.
The board and shareholders must approve the option grant. This typically requires a board resolution and sometimes shareholder approval depending on your company’s articles.
You must notify HMRC by 6 July following the end of the tax year in which the options are granted (within 92 days for options granted before 6 April 2024) to secure the tax advantages. If you miss this deadline, the options may not qualify for EMI tax benefits.
Advantages of EMI Share Options
EMI schemes offer significant benefits for both companies and employees. These tax-advantaged share option plans help businesses attract and retain key talent.
When you receive EMI options, you won’t pay Income Tax or National Insurance contributions (NICs) at the time of grant. This is a major advantage compared to other share schemes.
You’ll also avoid Income Tax when exercising your options, as long as you pay at least the market value the shares had when the options were granted.
One of the biggest benefits is the favourable Capital Gains Tax treatment. When you sell shares acquired through an EMI scheme, you may qualify for Business Asset Disposal Relief, reducing the tax rate to just 14% instead of rates up to 45% for a standard bonus scheme.
Additionally, EMI schemes provide significant tax relief for employers, as there are no employer’s national insurance contributions associated with them. This makes EMI schemes an attractive option for businesses looking to incentivise employees while minimising costs.
EMI options provide you with a stake in the company’s future success. This creates alignment between your interests and the company’s growth objectives.
Key advantages for employees:
- No Income Tax or NICs on grants
- No Income Tax on exercise (subject to conditions)
- Reduced Capital Gains Tax rate (potentially 14%)
- Direct participation in company growth
- Potential for significant returns if the company performs well
The EMI scheme is particularly valuable during the current tax year as it helps companies incentivise employees in a tax-efficient way.
Compliance with HMRC Regulations
Following proper HMRC procedures is essential for maintaining the tax advantages of your EMI options. Understanding the EMI tax treatment is crucial, as it ensures that your employee share options retain their beneficial tax status. Timely notifications and proper handling of events that could affect your scheme’s status are crucial requirements.
Notification and Reporting Requirements
After granting EMI options, you must notify HMRC within 92 days of the grant date for options issued before 6 April 2024. For options granted from 6 April 2024 onwards, the deadline changes to 92 days from the end of the tax year of grant (6 July).
This deadline is strictly enforced with very few exceptions for reasonable excuses. Failure to meet this timeline can result in the loss of tax advantages. Businesses risk losing the tax benefits associated with the EMI scheme if they do not notify HMRC before the specified deadline.
When submitting your notification, you’ll need to provide details about:
- The option holders
- Number of shares under option
- Exercise price
- Market value of shares at grant
The company must also report details of share options in their annual returns to HMRC.
Dealing with Disqualifying Events
Disqualifying events can jeopardise the tax benefits of your EMI scheme. You should monitor for these events carefully and take appropriate action when they occur.
It is crucial to meet the qualifying conditions to avoid disqualifying events and maintain eligibility for tax benefits.
Common disqualifying events include:
- An employee no longer meeting the 25-hour working week requirement (or 75% of working time)
- The company ceasing to meet qualifying criteria
- Substantial changes to share capital
- Changes to share restrictions not disclosed at grant
If a disqualifying event occurs, option holders typically have 90 days to exercise their options while preserving most tax advantages.
For companies seeking certainty about their EMI scheme’s eligibility, obtaining advance assurance from HMRC is highly recommended before implementation. This provides confirmation that your company meets the necessary qualifying criteria.
Setting Up an EMI Scheme
Setting up an EMI scheme requires careful planning and adherence to specific regulations. The process involves several key steps from registration to documentation that must be completed properly to ensure tax benefits are secured.
Meeting the EMI qualifying conditions during the setup process is crucial as it affects the tax implications for employees at various stages, including the grant, exercise, and sale of shares.
Standard Documents and Checklists
To establish an EMI scheme, you’ll need to prepare several essential documents. First, you must register your EMI scheme with HMRC to receive your reference number, which typically arrives within 7 days.
It is crucial to clearly structure the scheme rules, including vesting schedules and conditions, as these can impact tax treatments and compliance with HMRC guidance.
Your documentation package should include:
- Option Agreement – The legal contract detailing option terms
- Board Minutes – Formal approval of the scheme
- EMI Valuation – The market value of shares should be agreed with HMRC
- Articles of Association – May need amendments to accommodate the scheme
Remember to complete the EMI notification within the stipulated deadline. Your company must qualify for EMI, and employees can receive options worth up to £250,000 in a 3-year period.
The total value of options under an EMI scheme is capped at £3 million. Employees must work at least 25 hours weekly or 75% of their total working time for your company to qualify.
EMI FAQs
What is an EMI scheme?
Who can receive EMI share options?
To qualify, employees must work at least 25 hours a week or 75% of their time for the business. Directors can qualify too. The company must meet HMRC’s EMI rules, including trading independently and staying within limits for size, assets, and excluded sectors.
What are the tax benefits of EMI?
How is an EMI scheme set up?
Can EMI work for my company?
Managing EMI Options Over Time
EMI options require proper management from grant date through to exercise, including understanding the vesting schedule. Understanding how your options work over time ensures you maximise their benefits and avoid potential pitfalls.
Vesting Schedules and Performance Conditions
When you receive EMI options, they typically come with vesting schedules that determine when you can exercise them. Most companies structure these schedules over 3-4 years, either with monthly accrual or “cliff vesting” where a large portion vests after an initial period.
Your options may also include performance conditions linked to company milestones or your individual targets. These conditions must be clearly documented in your option agreement to comply with HMRC requirements.
It’s essential to note that EMI options must be exercisable within 10 years from the grant date. This long-term timeframe gives you flexibility but requires careful planning.
If you leave the company, check your option agreement carefully. Most schemes include “good leaver” and “bad leaver” provisions that affect whether you retain your options and how long you have to exercise them after departure.
Remember to track important dates for your options, including grant dates, vesting milestones, and the final exercise deadline to avoid missing opportunities.
How Our Accountants Help With EMI Schemes
At Plus Accounting, our experts guide you through every step of implementing an EMI scheme for your business. We understand that EMIs can be complex, but they offer significant benefits for employee retention.
Our services begin with evaluating your company’s eligibility for an EMI scheme.
We help you design an EMI option scheme that aligns with your business goals and values. This includes determining share allocation, option prices, and vesting schedules tailored to your specific needs.
One significant benefit of EMI schemes is the potential corporation tax deduction. When employees exercise their options, your company can potentially claim a deduction based on the difference between the market value of the shares and the price paid by the employees, providing a cash benefit that can enhance the overall financial viability of the scheme.
Our comprehensive EMI support includes:
- Valuation of your company shares
- Preparation of all required HMRC documentation
- Advice on tax implications for both your business and employees
- Ongoing compliance monitoring
- Support during option exercise events
We ensure your EMI scheme avoids the common pitfalls that can undermine effectiveness. Our team keeps up with changing legislation to protect your interests.
You’ll benefit from our clear explanations of how EMI options affect Corporation Tax relief and employee tax positions. We translate complex tax rules into understandable advice.
Our accountants work alongside your legal advisors to create watertight EMI documentation. This collaborative approach ensures all aspects of your scheme are properly addressed.
Get in touch to find out how you can make the most of EMI Schemes.
EMI Hub
The Power of Enterprise Management Incentive (EMI) Schemes
Can you qualify for Entrepreneurs’ Relief when selling shares you acquired through an EMI scheme?
Common Pitfalls and Best Practices for EMI Schemes
Managing EMI Options Over Time
Setting Up an EMI Scheme
How EMI Options Are Granted
EMI Guides
Benefits of EMI Schemes
Tax Advantages of EMI Share Options
EMI Schemes and Compliance
Issuing EMI Options to UK Employees When Your Parent Company Is International
Alternatives When EMI Isn’t an Option: Growth Shares, Unapproved Options & Bonus Schemes
See how we can help you...
We believe in being involved with the local business community and that is why we network extensively, host regular business seminars, write blogs and have many trusted, professional contacts