Picture this, you’re a UK-based company with around 200 employees and you’re looking into the world of equity compensation. You’ve heard about the many benefits of employee ownership, but getting started on this journey feels like opening a can of worms. From ESOPs to ESPPs, LTIPs to RSUs, it can feel like a headache of acronyms, making you cry OMG!
That’s where we come in. We’re your equity compensation experts with all the knowledge, tips and tricks to point you in the right direction. We’ve done the research and we’ve found a scheme that’s a cut above the rest for a growing company like yours. This is an acronym you definitely want to know about – it’s called an EMI.
What is an Enterprise Management Incentive (EMI)?
What is an EMI I hear you ask? It’s an Equity Management Incentive and it’s ideal for small to mid-size businesses that are looking to offer their team a piece of the equity pie. In fact, 85% of businesses in the UK that offer tax-efficient equity schemes offer an EMI.
Government-backed and designed for companies with under 250 employees, EMIs are incredibly tax-efficient, easy to implement and extremely flexible when it comes to vesting requirements. The vesting terms can be based on time or performance requirements or on employee exits, with the option to add good or bad leaver positions. The scheme is eligible for companies with gross assets below £30m and the maximum option entitlement per employee is £250,000 (based on the value of the shares). Employees must spend at least 25 hours per week or 75% of their total working time as an employee and they may not hold more than 30% of the company’s shares.
Sounds good so far? Well, the tax benefits are what really sets this scheme apart when compared to the rest. EMIs are the most tax-efficient schemes out there right now, benefiting both the employer and the employee.
“EMI is without a doubt the most popular share scheme for the employees of SMEs, it offers generous tax advantages and government figures demonstrate that “usage has increased significantly”.
Shaun Young, Director, Share Schemes and Employment Tax, Crowe UK
For employees on an EMI scheme, tax is applied to the value of the shares at the time of their award, rather than at the time of exercise, so if the value of the shares has risen, you only pay tax on the value that was set when the options were originally granted. Employees are also entitled to an Entrepreneurs’ Relief where the Capital Gains Tax is generously discounted to 10% (usually 20%), once the shares aren’t sold within 1 year of being granted.
Companies that offer an EMI scheme are eligible for corporation tax relief when their employees exercise an EMI option. Typically, this is the difference between the value of the shares awarded and their value when their options are exercised.
With tax relief for all, it would be rude not to! But in case you’re still wondering why an EMI scheme is right for you, the benefits don’t stop there.
Sharing the success
Finding the right type of rewards for your employees, and for your company, is essential to provide benefits for everybody
When you’re starting out, your team is everything. They’re the people who will show up every day and put in the hard work and extra hours. Rewarding them is important. An EMI scheme lets your team share in the company’s success. It provides a sense of purpose and it incentivizes everyone to work harder and work better together. If the company performs well, its share value goes up – a win-win for everyone. Not only does it keep your team happy, but it also helps to attract the best talent out there and it increases retention. Empowered employees stay with their employer for longer. An EMI scheme enables all of this, with the added advantage of multiple tax benefits for everyone involved.
If you’re on board with the idea of an EMI, the next step is to set one up. This can be daunting. Despite the many benefits of this scheme, there are plenty of legal and tax issues that need to be addressed, as well as the time-consuming administration. To qualify for an EMI, the HMRC also needs your company’s valuation as this impacts your tax position.
Luckily, equity compensation is what we do. The Global Shares enterprise incentive management software is tailored made for emerging companies to help them manage their equity plans from one secure online space. We offer full integration with the HMRC, meaning we can sort out your valuation and look after the registration process.
If you’re ready to get started on your EMI journey, get in touch with us today.