With the UK preparing for Brexit, many business owners and SMEs are naturally considering how they will be affected by the challenges and opportunities that lie ahead.
One certainty during such periods of uncertainty, is that it’s vital to tie top talent into a business because so often, it’s ultimately people that make the difference, helping to set a company apart from its competitors.
One of the best ways of locking the best people in, and indeed attracting new talent, is by dangling the carrot of shares in the business, or offering a share option incentive, which enables an employee to buy a certain number of shares at a fixed price, at a future date.
There are various tax efficient ways of doing this, with one of the most popular share option incentives being the Enterprise Management Incentive (EMI) scheme.
This is a tax favoured HMRC arrangement, specifically for smaller trading companies with growth potential and it can offer significant tax and National Insurance Contributions (NIC) savings for both employers and employees.
As part of the scheme, key people can be granted EMI options, over shares worth up to £250,000 at any time. Companies can grant EMI options up to a total value of £3million.
The fact Income Tax and NIC is not usually payable on EMI options is a key tax advantage and a corporation tax deduction, equivalent to the amount of gains realised by employees, may be available subject to meeting the necessary conditions.
However, 10 per cent Capital Gains Tax is payable on disposal of the shares if Entrepreneurs’ Relief applies.
It’s important to note EMI schemes relate to ordinary shares that are non-redeemable and fully paid up.
The company must also operate mainly within the UK, not be a subsidiary of another company, have fewer than 250 full time employees and gross assets of £30 million or less, when the EMI options are granted.
EMI options also cannot be granted to employees who already control 30% or more of the company’s ordinary share capital.
Qualifying companies can grant EMI options to any number of employees, as long as they work at least 25 hours per week, or for at least 75 per cent of their total working time.
The option must be exercised within a 10 year period and can commonly be subject to performance conditions being met, during an exit of the company, or at another agreed point.
For both employers and employees that meet the criteria and seek expert advice in executing EMI schemes, they offer plenty of flexibility and are a tried and tested way of incentivising, rewarding and retaining top talent.