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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.
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