Reasons to choose an EMI scheme

📘 Overview

An Enterprise Management Incentive (EMI) share option scheme is one of the most effective ways for growing companies to reward and retain key employees. It allows team members to share in the company’s future success while giving the business valuable tax advantages.

This article explains when an EMI scheme is likely to be a good fit and what makes it particularly attractive compared to other employee share option arrangements.

💡 When an EMI Scheme Is a Good Choice

An EMI scheme may be right for your business if any of the following apply:

• You want to incentivise talented staff who could earn higher salaries elsewhere, but are motivated by the opportunity to own part of the company they help to grow.
• You’d like your team to share in the company’s future value, aligning their interests with long-term business success.
• Your business is entering a fast-growth phase, focusing on developing intellectual property (IP) and increasing company value rather than immediate profitability.
• You are planning an exit, such as a stock market flotation or a sale to a larger company, within the next five to ten years.
• Both your company and employees meet HMRC’s eligibility criteria for EMI participation.

📊 Why EMI Schemes Are Often the Best Option

There are several types of employee share option schemes available in the UK. However, when a company and its employees qualify for EMI, it is usually the optimal choice because of the significant tax advantages it offers.

In particular:

• Employees pay no Income Tax or National Insurance Contributions (NICs) on grant or exercise of options (provided they are granted at market value and other conditions are met).
• On disposal of shares acquired through an EMI option, the employee may qualify for Business Asset Disposal Relief (BADR) meaning Capital Gains Tax (CGT) at a rate of 10% on the first £1 million of gains (subject to meeting holding-period and other qualifying conditions).
• Employers can normally deduct the cost of providing EMI options when calculating corporation tax (specifically, a deduction equal to the difference between the market value at exercise and the price paid by the employee).

These combined benefits make EMI schemes one of the most tax-efficient ways to share ownership.

🔍 When EMI Might Not Be Suitable

In some cases, an EMI scheme may not be appropriate or available. This can happen if:

• The company exceeds the asset (£30 million) or employee (fewer than 250 full-time equivalents) limits set by HMRC.
• Certain employees do not meet the working-time (at least 25 hours/week or 75% of their working time) or shareholding (not holding more than 30% of company) restrictions.
• The company’s activities are excluded (for example, banking, property development, legal services).

Where EMI is not possible, other arrangements, such as unapproved share option schemes, Company Share Option Plans (CSOPs) or growth share plans, may be more suitable. Barnes & Scott can guide you through these alternatives in detail to help determine the best fit for your company and team.

✅ Key Points

• EMI schemes align employees’ rewards with company growth.
• They offer exceptional tax efficiency for both employer and employee.
• Eligibility must be checked carefully before implementation.
• If EMI isn’t available, other share-based incentives can achieve similar motivational benefits.