EMI Share Option schemes in times of COVID-19

When Coronavirus turned the entire world upside down, nearly every business owner focused on protection of their business, its income, and its employees. In many cases protecting the economic wellbeing of the business resulted in pay cuts, furloughing staff, and cutting performance incentives such as bonuses.

Although the pandemic is far from over, it is important to consider the need to retain key value-generating employees that are critical to the survival and future success of a company. Granting EMI share options could be used to offset the downside of furlough  or a salary reduction without the need for an immediate cash injection, allowing an employee to feel part of the company’s future irrespective of the short term challenges.  

The Enterprise Management Incentives Scheme (EMI) is an approved employee share scheme that is available to most trading businesses. The main requirements are:

  • The business is independent with a permanent establishment in the United Kingdom, has gross assets of less than £30 million and less than 250 full time equivalent employees
  • The trade is not one of the excluded activities like dealing in land, banking, property development, farming, operating, and managing hotels, nursing homes or residential care homes

One of the main qualifying requirements of the scheme is that the employee works no fewer than 25 hours a week at the business or, if less, at least 75% of their working time. However, for options granted prior to 20 March 2020, employees will now remain qualified if they were placed on furlough, unpaid leave or were required to work reduced hours as a result of Covid-19.

The EMI scheme allows the employers to grant tax efficient share options to key employees. The main tax advantage is that any uplift in share value is not subject to income tax but is instead chargeable to capital gains tax, which can be as low as 10%.

Share options can be designed to suit the needs of the business. For example, the exercise of options can depend on meeting certain performance conditions and there can be exit only options which can only be exercised on a sale of the company.

In summary EMI schemes offer flexibility and for key employees, a great alternative to a bonus or a pay rise. Additionally, given the economic climate, it may be possible to agree lower share valuations with HMRC.

Contact us

If you would like to discuss how an EMI scheme could benefit your business please get in touch with our tax team.