When you’re running a start-up company, one of your biggest overheads is usually staff. Taking on employees is a crucial part of growing your business but it can be costly, especially if you want to attract the best candidates.
Unless you’re heavily funded from the outset, paying your employees premium salaries isn’t an option. Instead you need to find alternative ways of incentivising great talent to work for you. One option is the Enterprise Management Incentive (EMI) scheme.
What is it?
The EMI is a share scheme designed to help small, ambitious companies retain the right talent to grow. By rewarding staff you’re looking to recruit or retain with tax advantaged share options you offer employees a reason to work for you instead of large established company with deep pockets. The gains made on shares realised fall under capital gains tax as opposed to the higher income tax rate. As of June 2010, capital gains tax is charged at 28% for any gains made above £10,100. If your employee owns more than 5% of the company’s share capital they also qualify for Entrepreneurs’ Relief which offers a more favourable rate of 10% for the first £5m in lifetime gains.
Who qualifies?
Companies must meet a number of criteria to qualify:
- have gross assets of no more than £30 million
- have no more than 250 full-time employees
- not be under the control of another company
- operate in a qualifying sector (property development, financial services, farming, hotels, nursing homes, leasing, legal and accountancy services are all excluded)
- have a permanent establishment in the UK
Which employees are eligible?
The scheme is fairly all encompassing but there are a few restrictions. Qualifying staff must fall under the following rules:
- he or she must be an employee of the company, working at least 25
hours a week or, if less, 75% of their working time - he or she must not own more than 29% of the equity in the business as the purpose of providing them with share options is to ‘retain’ or ‘recruit’ them
How many people can join?
EMIs have proved so popular that the government abolished the limit on the number of employees who can be awarded share options – provided the maximum value of options doesn’t exceed £3m in total.
There is a limit of £120,000 per individual employee and the share option must be exercisable within 10 years.
Informing HMRC
If you do decide to grant staff shares under the EMI scheme you must notify HMRC within 92 days. You must send HMRC the following:
- completed Form EMI 1
- a declaration by the employee that they satisfy the working time commitment outlined above
- a declaration by a director or the company secretary of that the EMI requirements have been met