This scheme is the most appealing to business owners because it allows up to £3 million of company share options to be granted to qualifying employees, with employees being given up to £250,000 each in total shares. The main benefits for EMI are that it’s discretionary, so the employer can choose who they wish to reward.
Granting options under EMI requires agreeing a company’s market value with HMRC, for tax purposes only. Once agreed, the valuation is valid for 90 days, during which time the options should be granted to the employees. Provided that the options are then granted with an exercise price of at least this market value, there would be no Income Tax or NICs consequences upon grant or exercise of the options.
There are additional administrative procedures to meet to ensure that the option grant qualifies for the tax benefits of EMI.
At Cameron Cunningham, we would work with you to agree the company’s market value with HMRC, to register the scheme, make notifications and annual filings, and to renew future valuations with HMRC. If you require assistance with legal documentation for such schemes, we work with a number of like-minded legal firms who can provide this additional service alongside us.
Other schemes include:
- Company Share Option Plan (CSOP) - tax efficient alternative where EMI is not available. The maximum share value is £30,000 per employee and the share period must be between 3-10 years. As they sell the shares, the company may have to pay Capital Gains Tax.
- Save As You Earn (SAYE) - must be made available to all employees, subject to a qualifying period of employee service of up to 5 years, if stipulated. Once qualified, employees can buy shares at a company discount of up to 20% of the current market value for either 3 or 5 years. Employees will be required to contribute monthly anything between £5 - £500. There is no Income Tax charge, provided the minimum opt-in period is met.
- Share Incentive Plan (SIP) - there are 4 types of SIP shares: free shares, partnership shares, matching shares, and dividend shares. All shares are non-redeemable, must be fully paid up and held for at least 5 years before being sold. There are no Income Tax charged on the dividends paid out.
All such schemes carry annual reporting requirements (the deadline for which is 6 July following the end of every tax year), with which we can also assist.
The company can claim Corporation Tax Relief for any associated costs setting up and running SIP and SAYE schemes.