EU Renews State Aid Approval For The EMI Scheme

The Enterprise Management Incentive Scheme (EMI), is a low-risk share option scheme designed for small companies to provide share options to key employee’s tax efficiently as a reward for their efforts within the business and  to retain and incentivise key members of staff.

The main benefit of the scheme is the fact employees do not have to pay income tax on the market value of shares granted to them.  On disposal, employees will be liable for Capital Gains Tax (CGT) on the increased value of the shares and may also qualify for Entrepreneurs Relief meaning a lower CGT rate of 10%.

The EMI schemes advantages include:

  • Employers can use the scheme to attract potential employees, who would be crucial for the business but whose salary expectations are greater than the employer can currently afford.
  • The scheme is low risk for the employer, if the employee does not reach set performance targets they will not qualify for receiving their shares.
  • Contrary, if employees do meet their performance conditions they are rewarded with a tax efficient means to invest in the business.
  • If the value of the shares falls, then an employee can leave with no tax consequences or costs.
  • The scheme is also fairly easy to set up and manage.

The EMI scheme in the UK expired

The EMI scheme in the UK expired on the 6th April 2018. The UK had delayed (whether intentionally or not) renewing the application for EU state aid approval – one suspects the UK government might have been to preoccupied with brexit! There was much uncertainty surrounding whether the scheme would be re-approved, with many advisers including ourselves advising businesses to wait and see whether the scheme would be re-accepted under EU state rules.

Implementing an EMI scheme in the interim period may have meant employees running the risk of their shares being treated as non-tax advantaged.

The good news, is that on 15th May 2018 HMRC confirmed that the EMI scheme had been re-approved. This means employers and employees can now implement EMI schemes safe in the knowledge that their shares qualify for all tax reliefs.