We do Tax Planning.

We do Payroll.

We do Management Reports.

We do R&D Tax Credits.

We do HMRC Investigations.

We do Xero.

We do Capital Gains Tax.

We do Business Restructuring.

Tax Qube™

Expert Accountants That Deliver.

We are a firm of chartered accountants and tax advisers supporting businesses and individuals with their accounting and tax matters.

A Simple Guide to EMI Scheme

  • October 2021
  • 5 minutes

With our EMI scheme guide, you can learn how EMI share option plans work and how you may help your company reward its employees.

EMI Schemes are a fantastically flexible, tax-advantaged option for employers looking to incentivise their employees.

However, understanding how they operate is a different storey! That’s why we’ve put together this EMI scheme guide to help you figure out if an EMI scheme is good for your company and how it works.

taxqube What is an EMI scheme?

EMI stands for Enterprise Management Incentive scheme.

An EMI plan is a type of tax-advantaged employee stock option plan. Employers can issue share options (the right to purchase shares in a company) to key employees through EMI share incentive schemes, incentivizing them to work hard and help the company succeed.

Employers can ensure that only committed employees are rewarded for their efforts in growing the business by including vesting provisions (minimum periods of employment) and performance criteria (goals that must be met).

The EMI scheme is the most common type of share incentive plan for start-ups and SMEs looking to recruit and retain talented employees because it offers both employers and employees attractive tax benefits.

taxqube Which companies can offer EMI share schemes?

In order to offer an EMI scheme, an employer must:

  • Be a limited company
  • Not be controlled by parent company
  • Have gross assets less than £30 million
  • Have a fewer than 250 employees
  • Be conducting a commercial trade which isn’t excluded (e.g. Property investment or banking)
  • Have a UK base

Companies may issue up to £250,000 of share options per employee and a total of £3 million unexercised share options to all employees.

If a company does not meet these requirements, an alternative, such as a Company Share Option Plan, may be considered.

taxqube Who is eligible to join an EMI scheme?

In order to join an EMI scheme, employees must:

  • Be an employee of the company or a subsidiary
  • Spend at least 25 hours a week, or 75% of their time, working for the employer
  • Not hold more than 30% of the company

This means consultants and non-executive directors are unlikely to qualify.

taxqube What type of share options must the employer grant?

The share options must be:

  • For ordinary, non-redeemable, shares in the company
  • Fully paid up-example share price paid when issued
  • Capable of being exercised within 10 years of the grant
  • Set out in writing

taxqube What are the tax advantages of an EMI scheme?

For employees

The main benefit of an EMI plan is the tax benefit it provides to employees. Employees benefit from no income tax and national insurance when the grant is issued and exercised because it is an HMRC approved scheme. They also pay a lower capital gains tax rate (10 percent instead of 18 percent or 28 percent).

For employers

For corporation tax purposes, employers can deduct the cost of setting up and running an EMI scheme from their taxable income.

For corporation tax purposes, employers can deduct the gain on the shares between the date of grant and the date of exercise from their taxable income. The company would be able to deduct £95,000 from their taxable income in the example above.

taxqube How does a company set up an EMI scheme?

The usual procedure for establishing an EMI scheme is as follows:

  • Examine and, if necessary, amend the company’s articles of association to allow for the EMI share options to be granted.
  • Examine the shareholders agreement and, if necessary, amend it or obtain shareholder consent to grant EMI options.
  • Obtain a valuation of the company’s ordinary shares and agree this valuation with HMRC.
  • Draft scheme rules and decide whether to include provisions for things like vesting, performance, or good/bad leavers
  • Employees should be informed about the EMI scheme, and written agreements should be signed with them.
  • Companies House is where you can draught board minutes, hold board meetings, and file necessary company paperwork.
  • Register scheme with HMRC within 92 days of establishment.

taxqube Do you need a Tax adviser to set up an EMI scheme?

Share incentive plans, such as EMI schemes, are complex and, in most cases, impossible to set up without professional assistance.

If a company fails to seek professional advice before implementing an EMI scheme, they risk the scheme failing to be tax-advantaged (costing their employees a lot of money in taxes) and giving shares to employees who don’t contribute.

The main reason for establishing an EMI scheme is to encourage talented employees to join the company and contribute to its success. As a result, it should come as no surprise that saddling employees with a large tax bill or rewarding departing employees will have a negative impact on employee morale. It’s possible that this will have the exact opposite effect that implementing an EMI scheme was intended to have in the first place.

taxqube How much does an EMI scheme cost to set up?

Small businesses with a couple of employees can expect to pay around £2,000 to £3,000 plus VAT for a simple EMI scheme. However, keep in mind that this is deductible for corporate tax purposes. Larger employers are likely to pay significantly more for more complicated plans.

Looking for a Specialist?

Our Expert Team Can Help

Cost effective | Fixed Fee | Specialist Tax Accountants 

Please complete the form with your details or email us at [email protected]

Please provide as much detail as possible. One of our qualified business advisers will get back to you to discuss further.

    R&D Brochure