An Enterprise Management Incentive option scheme is a great way of incentivising your key team members in a tax efficient way
EMI (Enterprise Management Incentive) options are a tax-advantaged employee share scheme for the employees in your company. The tax advantage is that the award of this type of share option allows a future gain to accrue to the employee free of income tax when the employee acquires the shares.
Unless tax advantaged or HM Revenue and Customs approved share incentives are awarded, that option gain would be subject to income tax (and perhaps even PAYE and NICs) when the shares are acquired.
Key Features of EMI Options
- EMI Options are a right granted to your employee to acquire shares at a future date. This cannot be longer than 10 years.
- The EMI Options will often provide for the employee’s right to accrue, or “vest” over a period of time. Typically, this is anything from one to five years from the date of the award. The vesting could also be performance related, perhaps with regard to the turnover or profit levels of the company in each financial year.
- The value of the EMI Options at grant for each individual option holder cannot exceed £250,000. The EMI Options as a whole are limited to share options which, at the time they are awarded, cannot exceed £3million.
Our dedicated team, based in Witney, Oxfordshire, would be happy to answer your questions.
Other points that you will need to consider are:
- what happens to EMI Options when an employee leaves? Usually, the options that have not yet vested will lapse, but you may consider that it is fair to allow the employee to exercise any options that have vested but not yet been exercised?
- if the EMI Options have been exercised and an employee then leaves, must he or she offer to sell those shares back and if so at what price? Would it be fair to set out particular circumstances in which the price for those shares should be higher than others, perhaps through a distinction of good and bad leavers?
- whether you need to modify your Articles of Association so that EMI Options could not frustrate a sale of the company.
Our Articles of Association page provides further information on the relevant provisions which may be required to protect you.
You will want to agree a share valuation and the price per share for your EMI Options before they are granted. We can help you to decide how to value the shares in your company and make the application to HMRC on your behalf.
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