Employee Share Schemes

The relationship between employers and employees can be crucial in determining a company’s success.  Fair remuneration for employees can help maintain the relationship, but cash alone may not be sufficient to keep your employees incentivised and invested in the business.

The Enterprise Management Incentive scheme (or “EMI”) is one example of a tax-efficient scheme aimed at helping align the interests of business owners and their employees.  By design, the scheme can benefit both parties; providing the employee with a method of acquiring a share of the company to incentivise them to help drive its growth and affording the employer with a tax break for doing so.

The design of the EMI scheme is relatively simple; the employer offers the employee options over shares in the company (between 1% and 100% of the issued shares) which become exercisable at specified times dependant on the employee’s performance. The terms of the options are created at the employer’s discretion and so can be set to help the company achieve certain targets.

As well as its flexibility, the true benefit of the EMI scheme is the tax savings it attracts.  For the employee, any growth in share value between the date the option is granted and when it is exercised is ignored for income tax purposes.  That means that an employee can pay well below the share value at the date of exercise and not suffer any income tax. Furthermore, the company can claim that same growth in share value as a corporation tax deduction against profits in the year the options are exercised.

A TYPICAL EXAMPLE OF AN EMI OPTION WOULD BE:

Mrs Employee, the company’s sales director, is granted an option over 5% of the company’s shares. The option becomes exercisable only if Mrs Employee oversees a 5% rise in the company’s turnover in each of the next 5 years, at which point she will pay the company the agreed market value for the shares. Should she leave before the EMI scheme has concluded, Mrs Employee will forfeit any options she hasn’t exercised at that point.

If you think that an employee share scheme might benefit your business by enhancing employee engagement, get in contact with us today.