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EMI Qualifying Conditions: Is your Company Eligible? Let’s Find Out

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EMI Schemes and Eligibility Requirements 

Enterprise Management Incentive (EMI) schemes are firmly established as one of the most popular employee share plan types among UK companies.  

Under this flexible, tax-advantaged scheme, eligible companies get to select the employees they want to incentivise – more often than not, senior executives – and award them options to be exercised at a later date.  

EMIs are designed primarily to assist smaller companies with potential for significant growth, as well as attracting and retaining key employees.

Did you Know?

First introduced in 2000, EMIs have become increasingly popular among eligible companies, with the most recent official HMRC statistics showing that more than 13,300 businesses use an EMI as part of their equity compensation strategy. To put that figure into its proper context, those same statistics show that, overall, 14,400 companies offer discretionary share schemes, while 15,340 offer any kind of tax-advantaged scheme (source).

For a full breakdown of EMI schemes, check out our EMI complete guide. 

EMIs account for the vast majority of employee share plans currently in operation in the UK, but that does not mean that just any company can decide to put one in place. On the contrary, there are qualifying conditions in place governing eligibility – both for companies and their individual employees.  

What are the EMI qualifying conditions?  

You need to be certain that your company and employees general requirements are met in order to be eligible for the scheme. 

Company Eligibility Requirements 

  • Gross company assets cannot exceed £30 million, either for a standalone entity or – if applicable – a group.  
  • The company/group must have less than 250 full-time equivalent employees.  
  • The business must have a permanent base in the UK.  
  • You must be an independent operation, i.e., you must retain more than 50% of ordinary share capital.  
  • If you have one or more subsidiary companies, you must own at least 50% of each of them.  
  • Companies will be ineligible if substantially involved in any excluded industries, for example, property development, shipbuilding, coal and steel production, and hotels.  
  • The total value of unexercised options in circulation at any given time cannot exceed £3 million. If a company exceeds that limit, then the options above that limit will not qualify for EMI treatment.  
EMI scheme qualifying conditions checklist

Individual Eligibility Requirements 

  • Any employee or director being considered for the scheme must spend at least 25 hours per week or devote 75% of their weekly working time to the business.  
  • A participant cannot hold more than 30% of the company shares.  
  • To be eligible for favourable Capital Gains Tax (CGT) treatment, shares must not be sold until at least two years after the relevant options were initially granted.  
  • An individual can only be granted qualifying options up to a total value of £250,000 at the time that the options are assigned. Any grants that exceed this value will not receive favourable tax treatment. Also, if an individual reaches the £250,000 limit over time, they will not be eligible to receive any additional EMI options until three years after the most recent award, i.e., the award that brought them to the limit.  

It is also important to emphasise that it is not merely a matter of companies and targeted individuals qualifying for the scheme at the point that an EMI is being introduced, they must also continue to meet the eligibility terms throughout the life of the scheme. If at any point they fail to adhere to the prerequisite conditions, then an EMI disqualifying event is said to have occurred, and this, in turn, can impact adversely on the tax treatment of the options assigned under the scheme.  

If you now know that you are eligible and meet all the company and employee requirements, it’s time to set up and manage your scheme. 

Sounds confusing? We can help! 

You can spend some time looking through the gov.UK website, but you don’t have to. 

Global Shares has all the necessary skills and know-how to help you deal with your EMI at every step along the way, from qualifying conditions criteria, setting it up and then managing the scheme throughout its lifetime, and also, crucially, to assist you in handling potential disqualifying events as and if/when they emerge. Contact us today and speak to our dedicated share plan experts.   

 Want to learn more about EMIs?  

Whether you’re completely new to EMI schemes or looking to improve your knowledge, our EMI library can help you learn all about the world of enterprise incentive schemes. 

Please Note: This publication contains general information only and Global Shares is not, through this article, issuing any advice, be it legal, financial, tax-related, business-related, professional or other. The Global Shares Academy is not a substitute for professional advice and should not be used as such. Global Shares does not assume any liability for reliance on the information provided herein.

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