After a brief hiatus when there was uncertainty over whether EU approval would be granted, EMI schemes are available again. This is still the most popular and tax efficient scheme for small/medium sized companies to give their employees shares in the company.
Giving employees a shareholding in the company should mean that they will be committed to growing and staying with the business.
As the individual is receiving shares in the company they work for, unless they pay the unrestricted market value (this is a valuation for tax purposes only) for those shares then an income tax charge and potentially national insurance contributions will be due.
In addition, some Directors do not want to give a direct equity stake immediately as they want to retain some level of control or are worried about what happens when the employee leaves the business.
EMI is an approved HM Revenue & Customs share option scheme which allows employers to give shares to employees at an approved valuation without any income tax charges from arising. Under an EMI scheme, the employee has the right to receive shares in the company, they do not automatically receive shares in the company. EMIs are very flexible and each EMI option agreement can be tailored to each individual employee – so for example specific targets can be set for each employee, or they can only be exercised on a sale.
Therefore if the employee does not meet their targets set or if the company is not sold they will not get any shares in the company.
As this is an approved HM Revenue & Customs’ scheme there are a number of conditions that both the company and the individual need to meet to qualify.
If you would like any further advice on the use of EMIs and incentivising your staff please contact Latha Rodgers.