Expanding your international group to reward UK-based talent? The Enterprise Management Incentive (EMI) scheme remains one of the most tax-efficient ways to grant equity to employees, offering generous tax benefits that make it highly attractive.
However, special considerations arise when the parent company is non-UK. In this article, we share our expertise on navigating the nuances and offer empathetic guidance to ensure your UK employees benefit fully from EMI options, while complying with the qualifying criteria and scheme rules.
Understanding the UK “Qualifying Company” Requirement
To grant EMI options, the UK employer must be a “qualifying company.” Typically, this means the company granting the options should:
- Be an independent trading company with gross assets of no more than £30 million.
- Have fewer than 250 full-time equivalent employees.
- Conduct a qualifying trade (or be a holding company of a trading group).
When your ultimate parent is based overseas, you can still qualify if the UK subsidiary meets these tests. We’ll help you demonstrate that the UK entity is not merely a conduit for international profits but a genuine trading company in its own right, engaged in trading activities and not excluded activities such as property development.
Group Aggregation and Trading Tests
HMRC aggregates employees and assets across 75%-owned subsidiaries when assessing employee counts and asset limits. For groups with an international parent:
- Asset aggregation: Only UK-resident, 75%-owned subsidiaries count for the gross asset test; overseas assets are excluded.
- Employee aggregation: UK-based employees of qualifying subsidiaries count, but you can elect not to aggregate overseas headcount.
Our role: We review your group structure, prepare the necessary calculations, and make the right HMRC elections to ensure your UK company remains within EMI thresholds and complies with the total value limits on options granted.
Establishing a UK Permanent Establishment (PE)
If the UK arm operates as a PE of the foreign parent, EMI options can still be granted, but only by the UK PE, not the overseas parent. You’ll need to:
- Carve out a clear permanent establishment for UK employees.
- Set up separate payroll, bank accounts, and financial reporting.
How we help: Our team guides you through documenting and structuring your UK PE, liaising with your international tax advisors so that your EMI scheme stands up to HMRC scrutiny, including ensuring compliance with working time requirements and material interest rules.
Share Plan Administration & Documentation
A cross-border EMI option scheme demands meticulous paperwork:
- Grant notices must reference the UK company and clearly specify UK tax treatment.
- Option agreements should reflect both UK employment law and your international group policies, including details on exercise price and qualifying shares.
- Valuations must comply with UK’s “fair and reasonable” test, even if the parent’s shares trade overseas, establishing the actual market value at the date of grant.
Expert support: We draft and review all plan documents, co-ordinate independent valuations, and ensure consistency between your UK and global share schemes, helping you obtain advance assurance from HMRC where possible.
Tax Reporting & Post-Grant Compliance
After grant, you’ll need to:
- File an EMI480 return within 92 days of grant or by 6 July following the end of the tax year for options granted on or after 6 April 2024.
- Report any disposals or exercises on the employee’s annual Self-Assessment.
- Monitor restrictions and vesting conditions to maintain EMI status and avoid disqualifying events that could lead to loss of tax relief.
We’ll: Manage all HMRC filings, prepare reporting packs for your UK payroll team, and coach employees on how to report their gains to avoid unexpected income tax and National Insurance contributions liabilities.
Guidance for Your UK Team
Issuing share options is about more than compliance; it’s about motivating and retaining your UK people. We’ll help you:
- Communicate clearly: Translate complex UK tax rules into accessible employee guides.
- Plan exercise windows: Advise on timing to minimise income tax, National Insurance contributions, and capital gains tax liabilities.
- Support individuals: Offer one-to-one sessions so employees understand their rewards, including how Business Asset Disposal Relief may apply to gains realised on qualifying shares.
Whether you’re a fast-growing tech startup with a European parent or an established global group entering the UK market, Plus Accounting is here to simplify EMI issuance. From structuring your UK entity, through scheme design and documentation, to tax filings and employee education — we’ve got you covered.
Get in touch with our share-plan specialists today for a confidential discussion about issuing EMI options to your UK team.