Enterprise Management Incentives (EMI)

By Tolley
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The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Enterprise Management Incentives (EMI)
  • Summary
  • Key features
  • Tax treatment for the employee
  • Tax treatment for the company

Summary

The EMI is an employee incentive scheme aimed at small entrepreneurial companies that meet certain conditions. It has been designed to assist such companies to recruit and retain high quality employees.

A tax advantaged share option scheme is one that, provided certain criteria are met, HMRC allows preferential tax treatment for the employee compared with non-tax advantaged share option schemes (formerly known as ‘unapproved’ schemes).

The scheme offers attractive opportunities for equity participation by employees, in recognition of the fact that smaller companies may not beable to match salary levels paid elsewhere. The EMI is also flexible enough to allow for the option share to begeared to future capital growth and performance targets to beused in the scheme. So long as the options keep qualifying for EMI status throughout the period of ownership, the employee should beable to take advantage of income tax and National Insurance (NI) reliefs.

Key features
EMI requirements and definitions

The rules for the EMI are found in ITEPA 2003, Sch 5 and Part 7, Chapter 9.

General requirements

As per ITEPA 2003, Sch 5, paras 5–7, the maximum value of tax-favoured EMI options that can begranted is £250,000 per employee (£120,000 for options granted before 16 June 2012), reduced where the employee holds unexercised options granted under a Schedule 4 Company Share Option Plan (CSOP), ie one which has been self-certified as tax advantaged (formerly known as ‘HMRC approved’ CSOP schemes). The maximum value of EMI options that a company or group can grant is £3m. Where the value of an employee’s options reaches £250,000, no further qualifying options can begranted for three years, and after that only if some or all existing options have been exercised.

Qualifying companies

To qualify

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