{"id":10576,"date":"2023-09-10T12:26:53","date_gmt":"2023-09-10T11:26:53","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=10576"},"modified":"2024-11-08T10:01:43","modified_gmt":"2024-11-08T10:01:43","slug":"enterprise-management-incentives-emis","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/enterprise-management-incentives-emis\/","title":{"rendered":"An introduction to Enterprise Management Incentives (EMIs)"},"content":{"rendered":"
An Enterprise Management Incentive or EMI is a government-backed share options scheme designed to reward your employees in a tax-efficient way. EMIs are specifically intended to help small companies grow by offering incentives to recruit and retain staff, whilst enjoying significant tax advantages. Since its launch in 2000, EMIs have become the most popular government-approved incentive scheme amongst start-ups.<\/p>\n
This article is an introductory guide to EMIs. We\u2019ll discuss what EMIs are and how they work, the benefits for employers and employees, who is eligible for them, and how to set up an EMI scheme at your company.<\/p>\n
EMIs are share options that small companies with growth potential can offer their employees. By offering such incentives, small and midsize enterprises (SMEs) can boost their business health by recruiting and retaining valuable staff, whilst benefitting from considerable tax advantages.<\/p>\n\t\t
So, what exactly are share options? This is fairly straightforward. Share options offer employees the right to buy a portion of equity (ownership) through an option agreement. The company terms should clearly detail how much the shares will cost and when and how they can be purchased.<\/p>\n
The main difference between share options and shares is the timing. While shares grant an immediate stake in the company, share options are given under pre-agreed conditions (such as after the successful completion of a probationary period, or the achievement of specific performance targets) and a fixed price.<\/p>\n
5 ways to stop employees from quitting<\/span><\/a>\n Benefits of a Save As You Earn (SAYE) share scheme<\/span><\/a>\n <\/p>\n Until options are exercised and turned into shares, they remain share options.<\/p>\n Another difference between the two is the cost. Employees normally have to pay for shares and incur tax charges on them, unlike share options. For this reason, share options tend to be the more popular choice amongst small companies.<\/p>\n There are a few requirements that both employers and employees must meet to qualify for EMIs.<\/p>\n In reference to qualifying trades, HMRC defines the below as excluded activities:<\/p>\n Generally speaking, it\u2019s likely that your company qualifies for EMIs if you don\u2019t operate in the above industries.<\/p>\n You can find out more about EMI eligibility here<\/a>.<\/p>\n Some of the main reasons why start-ups offer EMIs include flexibility and tax benefits. They\u2019re also designed with growth in mind, helping new and up-and-coming companies expand by attracting new talent.<\/p>\n EMIs have many attractive benefits, but there are also some potential disadvantages to think about. For example:<\/p>\n While there are a few things to be aware of before you get started, the above points are easy to navigate with the right advisory team to help you implement and manage the scheme.<\/p>\n Once you\u2019ve checked that your company qualifies for an EMI scheme, you can start thinking about how you\u2019d like the scheme to work for you and your employees. Some questions you could think about are:<\/p>\n Next, you should file for a valuation<\/a> with HMRC. This can take 2-4 weeks and provides you with a written, government-backed valuation of the share options within your EMI scheme.<\/p>\n Once you\u2019ve received your valuation, you can think about the size of the share pool that will be offered to employees, their exercise options, and any special conditions.<\/p>\n Don\u2019t forget, the board of directors needs to approve the granting of the options (and in some cases, they can only do so with shareholder approval).<\/p>\n The last step is to register the scheme<\/a> with HMRC within 92 days of being granted. If you have fewer than 30 employees, you can use the employment-related securities service<\/a>. If you have 30 employees or more, you\u2019ll also need to download and complete the EMI notification template, which includes the employee\u2019s details, the number of granted shares, their exercise price, actual market value, and the unrestricted market value on the grant date.<\/p>\n The completed template should be submitted via a Government Gateway account. Once HMRC has confirmed receipt, make sure you keep this for your records.<\/p>\n You may want to start by appointing a key contact that can answer employee\u2019s questions about the scheme and its benefits. They\u2019ll most likely want to know more about why the scheme has been implemented, how they can get involved, and what the costs and tax benefits are.<\/p>\n You\u2019ll also need to run regular admin maintenance of your EMI scheme, which you may wish to consider the key contact being responsible for.<\/p>\n Amongst other duties, the person managing the administration maintenance will be responsible for managing option holders, making sure that your company remains compliant if\/when your circumstances change, keeping a clear and detailed record of the share pool, and sending updates to HMRC.<\/p>\n If an EMI scheme sounds like the right option for you, one of the great things about them is that they\u2019re fairly easy to set up. However, getting your head around the qualifying criteria and the admin process of registering with HMRC can be confusing if you haven\u2019t done this before.<\/p>\n Your financial advisors should be able to help you with the ins and outs of EMIs, which could really help your small company grow and develop a strong and talented team.<\/p>\n If you have any questions or thoughts and experiences to share regarding EMIs, let us know in the comments below, or get in touch<\/a> with our company formation team.<\/p>\n Who qualifies for EMIs?<\/h3>\n
Requirements for employers:<\/h4>\n
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Requirements for employees (including directors):<\/h4>\n
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The benefits of EMIs<\/h3>\n
Here\u2019s why your company should consider an EMI scheme:<\/h4>\n
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Here\u2019s why your current and future employees might be interested in EMIs:<\/h4>\n
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Are there any disadvantages of EMIs?<\/h3>\n
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How to set up an EMI scheme for your company<\/h3>\n
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How to manage an EMI scheme<\/h3>\n
Summary<\/h3>\n