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Enterprise Management Incentives (EMIs)

Enterprise Management Incentives (EMIs)

Fiduchi Employee Services team has a wealth of experience in the design, implementation and administration of Enterprise Management Incentive share option plans. Working with you, they will assist with the establishment of your UK tax-advantaged plan.

Tax Advantaged Plans, Share Plans, Employee Incentive Plans, Employee Services

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The typical Trustee and Administration service provider of employee incentive plans is not involved in the entire process from setup to on-going administration and after-care (e.g. training). We are, and this is what makes our approach different. Providing a one-stop solution from start to finish. 

What are EMI share options?

An EMI share option plan is a UK tax-advantaged plan for trading companies with gross assets of less than £30m and less than 250 employees. 

For companies who qualify it has become the most popular form of employee share plan because it is very flexible and can be designed to meet the particular needs of each business, its owners and its employees. Also, the tax reliefs available to the participant and to the company are generous. 

Wherever there is a shared belief in the growth potential of the company the right of an option holder to realise the value of that growth, at very low tax rates, can be a powerful incentive. This is particularly so where a sale or flotation of the company may be considered once that growth is achieved. 

How does an EMI plan work and what design choices are there?

The employer gives the employee a formal option agreement giving him the right to acquire shares in the employing company (or in the case of a trading group, the parent company). There is a range of design choices open to the employer:

  • The employer can select whichever employees he wishes to participate in the plan;
  • The exercise price set out in the option agreement may be whatever amount the employer chooses;
  • The employer may, if he wishes, impose conditions that must be met before the options can be exercised (e.g., meeting business targets, etc.);
  • The employer may, if he wishes, provide that the option can be exercised only within a specified period (of up to 10 years) from the date of grant;
  • The employer may, if he wishes, impose further conditions such as “good” and “bad” leaver rules to ensure that those who leave for “good” reasons (e.g., illness, redundancy, retirement, etc.)
    may exercise some or all of their options, while those who leave for “bad” reasons (e.g., to leave to join competitors) lose their options;
  • If the current owners do not wish employees who exercise their options to have votes, or rights to dividends, or to any particular proportion of capital on an exit, the shares put under option may be of a special class designed to achieve this;
  • The option may be to subscribe for new shares on exercise, or to buy existing shares from other shareholders (such as the controlling shareholders or an employee benefit trust, and so on).

The main conditions for EMI tax relief are as follows:

This is a brief summary and should not be relied on alone.

  • The gross assets of the company must not exceed £30m when the options are granted;
  • The company or group must have less than 250 full-time employees;
  • The employer must carry on a trade in the UK. Most types of trade are permitted but some types are excluded from the plan such as property development, financial services, farming, etc.;
  • The company must not be under the control of another company;
  • Participation in the plan is limited to full-time employees;
  • Any employee who already owns more than 30% of the company is excluded;
  • The total value of shares put under option to any one employee is limited to £250,000;
  • The total value of shares put under option to all employees is limited to £3m;
  • The EMI plan must be registered with HMRC;
  • Each option must be notified to HMRC within 92 days of the grant;
  • If there is a “disqualifying event” (for example, the employment is terminated or the company comes under the control of another company) the option must be exercised within 90 days of the event, otherwise the tax relief on any later exercise is less advantageous.

Advantages for the employees:

  • There is no tax or national insurance contributions (NIC) charge on the grant of the option;
  • If the exercise price is at least equal to the market value of the shares at the date of grant, no income tax or NIC is due on exercise of the option. Otherwise, income tax and NIC are due on exercise but only on the excess of the value of the shares at the date of grant over the exercise price;
  • If the value of the shares increases between the grant and exercise that gain is not charged to income tax or NIC on exercise;
  • When the employee sells the shares capital gains tax will be due on any gain realised on that sale, normally with the benefit of “entrepreneurs relief” (so that the tax rate is only 10% for the first £1m of gains realised and 20% on any excess above that);
  • In a private company, at the time of grant the market value of the shares for tax purposes would normally involve a very substantial “minority discount” (often in the range 60% to 90%) from the “pro-rata” value of the shares. But on a sale of the company no such discount would apply. The potential for low-taxed gains on a corporate exit is therefore substantial even if there is little or no growth in the value of the company itself;
  • HMRC will agree a valuation of the shares in advance of the grant of the option so that the employer and employee can have certainty on the tax treatment on exercise of the option.

Advantages for the employer:

  • Giving the employee this valuable benefit may reduce pressure for pay rises or bonuses or other cash remuneration;
  • On exercise of the option, the company will normally benefit from a deduction from its profits in calculating its corporation tax liability, equal to the employee’s gain, even though the company does not incur any cash cost in providing the benefit.

Testimonials

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I would like to extend a BIG thank you to the Fiduchi team for taking such good care of me and my business. It's reassuring to know that there are some guardian angels out there to look after us."

Founder & CEO - SUPERLUXE Events

"Thank you very much for your professional assistance (and patience) in helping us transfer our shares and assets into the new Trust. I know that it has taken longer than expected. Still, your professionalism and continued support have helped us achieve the desired outcome."

Chairman and CEO

"My sincere thanks for the assistance you have provided the advisory committee by coordinating directly with the charity to formalise an agreed donation plan."

Private Client (Charity)

"Many, many thanks for your hard work and speed at setting up our client's Private Investment Company in just 24hrs! Your flexibility and communication throughout the whole process have been appreciated, and the feedback has been tremendous......

Thank you."

Major UK Law Firm

"Thank you, everyone, for delivering this significant re-structure to our family assets and within a very tight timeframe.

Great to get this finalised!"

Mr. C - Private Client

"THANK YOU TO OUR GUARDIANS!

I would like to extend a BIG thank you to the Fiduchi team for taking such good care of me and my business. It's reassuring to know that there are some guardian angels out there to look after us."

Founder & CEO - SUPERLUXE Events

"We consider Fiduchi an important strategic partner of ours. Over the years they have proven themselves to be professional and extremely thorough. Combined with this professionalism, they are always a pleasure to deal with and we are pleased with their service levels."

Mr. P.E, Managing Director, W Ltd.

"We consider Fiduchi an important strategic partner of ours. Over the years they have proven themselves to be professional and extremely thorough. Combined with this professionalism, they are always a pleasure to deal with and we are pleased with their service levels."

Mr. P.E, Managing Director, W Ltd.

“I am very impressed with the professionalism and efficiency Fiduchi Limited demonstrated during the establishment of our employee benefit trust. They coordinated the process seamlessly and provided us with valuable advice and guidance to ensure compliance with our regulatory and legal responsibilities. Throughout my engagement with the team, I have found them to be approachable and easy to work with.”

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"Thank you for helping us with the establishment of our real estate fund."

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Find out how we can help with your employee incentive plan below

Our experienced employee services team are here to answer any questions you may have regarding all types of employee incentive plans. With a wealth of knowledge and expertise, they will be able to advise you on the best solution that meets your business needs.  

You can telephone our employee incentives team on: +44 7797 831 648 or +44 7415 918 046

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