W ith this shortage in talent comes an associated expectation of increased salaries, and along with the recent increase in Employer National Insurance Contributions, taking on new employees using traditional remuneration packages is becoming increasingly expensive. So, many businesses are therefore now looking at other ways of rewarding new or existing employees to differentiate themselves in the marketplace. And one effective way for UK businesses to do this is by offering Enterprise Management Incentive (EMI) share options. EMI schemes provide significant tax benefits whilst aligning the interests of employees with those of the company, fostering a sense of ownership and commitment. In this article, Tax Partner Chris George explores the key reasons to consider incentivising employees with EMI share options and the tax advantages of such schemes. What Are EMI Share Schemes? Enterprise Management Incentives (EMIs) are a type of employee share option scheme where employees are granted options to buy shares in the company at a future date, often at a predetermined price. These options can then be exercised after a specified period or upon meeting certain performance criteria. Key Benefits of EMI Share Options Attracting and Retaining Talent: EMI schemes are an attractive benefit for both potential and current employees. And by offering share options, companies can attract skilled professionals who are looking for more than just a salary. The prospect of owning a stake in the company can be a motivational tool, encouraging employees to stay with the company longer and contribute to its growth. Aligning Interests: Share options align the interests of employees with those of the company. When employees have a financial stake in the success of the business, they are more likely to be motivated to work towards its success. Leading to increased productivity, innovation, and overall company performance. Cost-Effective Remuneration: For many growing businesses, cash flow can be a constraint. So, by offering share schemes, companies can offer competitive remuneration packages without the immediate cash outlay. This can be particularly beneficial in those environments such as startups and small businesses that need to conserve cash while still attracting top talent. Employee Loyalty and Engagement: Offering EMI share options can foster a sense of loyalty and engagement among employees. When people feel they’re part-owners of the company, they’re more likely to be committed to its long- term success, leading to lower staff turnover rates and a more stable workforce.
Tax Benefits of EMI Share Options One of the most compelling reasons for UK businesses to implement EMI schemes though is the significant tax advantages they offer such as: No Income Tax or National Insurance on Grant: When EMI options are granted, there is no income tax or National Insurance Contributions (NICs) payable by the employee. Making EMI schemes more attractive than other forms of employee compensation. Tax-Advantaged Exercise: Generally, no income tax or NICs are payable when the employee exercises the EMI options, provided the exercise price is at least equal to the market value of the shares at the time the options were granted. However, if the options are granted at a discount, income tax and NICs may be payable on the difference between the exercise price and the market value at the time of grant. Capital Gains Tax (CGT) Relief: When the shares acquired through EMI options are sold, any gain is subject to Capital Gains Tax (CGT) rather than income tax. This is beneficial because CGT rates are generally lower than income tax rates. Additionally, if the shares are held for at least two years, the employee may qualify for Business Asset Disposal Relief (BADR), which reduces the CGT rate on gains up to £1 million. Corporation Tax Deduction: Companies can benefit from a corporation tax deduction equal to the difference between the market value of the shares at the time of exercise and the amount paid by the employee for the shares. And this can result in significant tax savings for the company. Is an EMI Share Scheme Right for You? Incentivising employees with EMI share options is a strategic move for UK businesses looking to attract, retain, and motivate top talent. The combination of aligning employee and company interests with significant tax advantages, makes EMI schemes an attractive option for both employers and employees. And by offering EMI share options, businesses can create a more engaged and committed workforce, to drive long-term success and growth. Implementing an EMI scheme does require careful planning and compliance with HMRC regulations, but the benefits far outweigh the complexities. To find out more about whether an EMI scheme could be right for your business, contact Chris or one of the team on 0330 058 6559 or email hello@scruttonbland.co.uk
MANUFACTURING A N D ENGINEERING | SCRUTTON BLAND | 9
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