MAY JUN 17

T A X
The key tax
benefit of EMI
schemes is that
the employee
avoids Income
Tax and National
Insurance
Share option
schemes are a
terrific way to
keep employees
happy in a
climate where
cashflow will not
sustain higher
salaries
rob@moneymatters
inwidnes.co.uk
0151 422 99 77
moneymatters
inwidnes.co.uk
Share options beat
the Christmas bonus
Finding new and inexpensive w ays t o rew ard good st aff can prove t o be very
challenging for m any businesses. How ever, incent ivising em ployees in t he form of
share opt ion schem es can be a great vehicle for rew arding st aff especially if you are
a new st art -up com pany and you don?t necessarily have t he resources t o m eet your
best recruit s?m arket level salary expect at ions, w rit es Robert Jones, Managing
Direct or, Money Mat t ers Lim it ed
HMRC approved share option schemes, in
particular the Enterprise Management
Incentive (EMI) scheme, can provide significant
tax advantages to employees. The putting
together of EMI schemes is a part of our core
expertise. What?s more the cost of actually
setting up and administering the scheme will
potentially be a tax deductible expense for
your company against Corporation Tax. EMI
schemes can apply for the benefit of both
quoted and unquoted companies.
The key tax benefit of EMI schemes is that the
employee avoids Income Tax and National
- The company must have a
permanent establishment in the
UK
- The company must be
independent and not under the
control of any other Company
- The company must have fewer
than 250 employees
- The gross assets of the company
must not exceed £30 million
- Certain companies are excluded
from such schemes, for example:
those involved in leasing,
property development and
financial activities.
Equally, there are certain
qualifications for employees to
actually qualify to be an EMI
option holder:-
- The employee must not have a
material interest in the company
(ie not more than 30% of the
company)
- The employee must work for the
company for at least 25 hours a
week or for at least 75% of their
paid working time
- Each employee can only hold a
maximum of unexercised options
worth £250,000 in any three-year
period under the EMI scheme
(any further options granted to
the employee over and above this
sum would not qualify for EMI
relief). Other considerations are:
- Companies are free to set their
own option price which may be
more or less than the market
value of the shares at the date
the option is granted.
- It is not possible to grant any
EMI option over redeemable or
convertible shares.
- Although the company is free to
set its own option period, the
options must only be capable of
exercise within 10 years of being
granted and be exercised within
that period. After 10 years the tax
benefits of EMI will no longer
apply to the exercise of any
outstanding options.
- Your accountant & solicitor will
Insurance which would normally be charged on
the market value of any shares or options
granted to them. If the employee is given
options under the scheme they are only
charged Capital Gains Tax on the increase in
value over the option exercise price (ie what
they pay for the shares) as long as the price is
at or above the pre-agreed market valuation
with HMRC. Capital Gains Tax annual
exemptions may apply and Capital Gains Tax
rates are generally significantly less than
Income Tax rates. However, there are certain
conditions which apply for the company to
qualify:
need to review your company?s
articles of association in order to
ensure that the company may
buy-back the shares from the
employee who has bought shares
under their options agreement if
they later leave employment.
- Option shares may be a
different class of shares eg
non-voting, accordingly the
articles of association of the
Company may need to be
re-drafted to create the different
share classes.
Share option schemes are a
terrific way to keep employees
happy in a climate where
cashflow will not sustain higher
salaries and in any event provide
a great incentive and motivation
for your employees to make your
company succeed.
Contact our expert Robert Jones
to create an EMI scheme for your
company, or to read our
extensive range of articles, visit
the website
19.