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Enterprise Management Incentives (EMIs) – A Tool For Retaining Key Staff

It is essential for businesses to be able to attract and retain key members of staff and implementing an employee share ownership scheme can help businesses achieve this. Providing employees with shares in their employer company can help companies align their own interests with that of their employees, with both becoming mutually invested in the growth of the business and looking to increase the shareholder value.

An Enterprise Management Incentive (EMI) scheme is a Government supported tax advantaged share option scheme which enables companies to provide shares to employees in a tax efficient manner.

The scheme is open to trading companies and there is no limit on the number of employees that can participate. There are a number of qualifying conditions which have to be met by both the employer and employee in order to qualify for favourable tax treatment.

The terms of the option can be flexible and drafted in such a way to meet the commercial requirements of the company. This can be done by setting conditions whereby the employee has to achieve certain performance targets, for example, before they may exercise their option to purchase shares.

Provided the employee pays the market value for their shares as at the date the options are granted, there are no income tax implications for the employee. There may be capital gains tax due for the employee on the sale of the shares if there is any growth in value from the date that the option was exercised. However, the gain may be eligible for Business Asset Disposal Relief (BADR) at the reduced rate of tax at 10%, providing the option has been held for a minimum period of two years and all other conditions are met.

For more information or advice on the Enterprise Management Incentive scheme, please contact our Employer Solution team.

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