Why use an EMI scheme?

By Tolley in association with Andrew Rainford
  • (Updated for Budget 2020)
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The following Employment Tax guidance note by Tolley in association with Andrew Rainford provides comprehensive and up to date tax information covering:

  • Why use an EMI scheme?
  • Share options
  • Flexibility
  • Personal tax treatment
  • Corporation tax relief
  • Share valuation

The legislation, primarily in ITEPA 2003, Sch 7, gives employers a strong clue as to the intended benefits of enterprise management incentives (EMI) schemes. It suggests that they should be used to recruit and retain members of staff.
 
When the legislation was originally introduced in 2000, the belief was that small, fast growing companies, particularly in the IT sector, would need a boost to assist in the retention of staff in a highly competitive market.
 
Many start-ups struggle to pay market rates and are therefore constantly at risk of losing the employees that they need to develop. As a result, EMI were introduced to help small companies. Today, most smaller companies are able to benefit from EMI and if they are able to do so, almost certainly should take advantage.
 
A good source of further information is at ETASSUM50000.
 
On 15 May 2018, the EU confirmed state aid approval for EMI schemes. Although the EU state aid approval had previously expired on 6 April 2018 and was only renewed on 15 May 2018, HMRC confirmed in its employment-related securities bulletin 30 (October 2018) Opens in a new window that it will nevertheless treat EMI qualifying share options granted between 6 April and 15 May 2018 as continuing to receive EMI tax advantages.
 

The EU Commission extended this EU state aid approval for EMI schemes until 2023; however, in its employment-related securities bulletin 34 (February 2020) Opens in a new window, HMRC confirmed that state aid will continue to apply until at least the end of the transition period. HMRC will provide more information, when known, in respect of what the new domestic regime will be followin

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