10 reasons SMEs love the Enterprise Management Incentive

Small and medium-sized enterprises can have a tough time of it.

Competing against huge companies often leads to smaller concerns being pushed aside. However, there are many ways a small business can more than hold its own. 

And the Enterprise Management Incentive (EMI) is one of them. 

What are Enterprise Management Incentives?

EMI is an employee share options scheme that has major tax advantages. It isn’t open to all businesses, but for those that qualify, it’s a great opportunity.

In fact, over 16,000 UK-based companies operated one of HMRC's tax-advantaged employee share schemes in the 2020/21 tax year. The most popular? EMI, of course.

Download our free guide to learn everything there is to know about EMI.

EMIs are usually open to businesses that have less than 250 employees on their books and have £30 million in gross assets or less.

There are a few other conditions too, so it’s important to check that your particular business meets the criteria beforehand. 

Take our two-minute quiz to see if your company qualifies.

The aim of the Enterprise Management Incentive is to help small companies grow and retain their staff while preserving cash - plus it benefits employees too (which we'll touch on too).

10 reasons why EMI is great for small businesses

1) Tax-efficient (for the employer)

Businesses can offset the cost of their EMI scheme with the company’s liability and tax benefits their employees get. Plus, once exercised, qualifying shares are eligible for a Corporation Tax (CT) relief. 

That makes an EMI scheme a cost-effective alternative to a bonus or salary bump - helping small businesses keep cash in the bank but also incentivise their teams.

2) Tax-efficient (for the employee)

Under EMI, employees' options qualify for Business Asset Disposal Relief - so employees will only pay only 10% Capital Gains Tax (CGT) on any gains they make, as opposed to the standard 20%. (Conditions apply).

Read our full breakdown of the tax benefits for the employer and employees.

3) No upfront cost for employees

Employees don't have to pay income tax or make any National Insurance (NI) contributions when their EMI options are granted. They may have be liable for income tax and NI when they come to exercise their options. 

Exercising is when an employee paying the exercise price to receive their shares. Learn more.

4) Employers can set conditions

As well as design a vesting schedule, small business owners can identify performance goals that employees must hit before they can access all of the options allocated to them and exercise them.

Check out our equity milestones guide for inspiration.

And in turn boost productivity and team performance which massively benefits the business. Think of it as a long-term employee incentive that helps small companies smash long-term objectives. 

5) EMI improves employee loyalty

Hiring new recruits is an expensive process, both in terms of time and money.

Research by Oxford Economics and Unum states that the average cost of turnover per employee (earning £25,000 a year or more) is a staggering £30,614.

However, when employees feel that their employer values them and wants to do the best for them, they’re far more engaged and likely to stay where they are

We collected a load of data in response to the Government's call for evidence on the effectiveness of EMI.

As part of that, we asked our customers if they believe that their EMI scheme improves retention and a whopping 95% agreed that it does.

6) EMI attracts talent

If you are recruiting, you’ll find that the best talent out there will be attracted to businesses that offer awesome employee incentives. 

The word ‘incentives’ can cover a huge amount of different things but schemes like EMI can be very attractive to prospective new employees. 

In fact, our latest employee benefits survey revealed that one in three Brits would be swayed by a company share scheme if it was a toss-up between two companies.

And our EMI consultation report revealed that 93% of our customers feel that their EMI scheme helped them on the recruitment front too.

7) Employees feel like they belong

We mentioned employee engagement earlier on, and when you offer an incentive scheme like this, you’re helping the employee to feel that they belong to something.

And this has everything to do with the Ownership Effect. When an employee owns (or has the opportunity to own) even a fraction of equity in the business, they're more likely to be invested in its success.

It instils a sense of pride and a commitment to work together to ensure the business thrives.

8) Companies can stand out from the crowd

Don't let the big names bag all the talent!

When it comes to staff retention and new recruitment, a lot of it is down to going one further than your competitors.

Despite the incredible benefits, many UK startups and SMEs, aren't aware that schemes like the Enterprise Management Incentive exist.

So the fact that your business does, means that you have an advantage over them and larger businesses that wouldn't qualify for EMI (even if they wanted to).

9) Share schemes help companies grow

Most businesses (and many of our customers) agree that their EMI scheme has helped them grow their business - basically as a culmination of all the points mentioned above. 

And that growth massively contributes to a business' overall value.

For startups, fast growth is key, but growth with the right employees is what it’s really about. Keeping employees on board and fostering loyalty is a key element in business success. 

10) EMI is surprisingly easy to set up

While some employee incentives can be quite costly for businesses, this isn’t one of them but also has a huge amount of benefit for everyone. 

There's a misconception that setting up an EMI scheme is costly and complicated, but it doesn't have to be, not if you choose an equity management platform.

With Vestd you can:

  • Set up your EMI scheme from scratch.
  • Digitise an existing EMI scheme.
  • And access a range of features including a real-time cap table.

Join the many UK business owners that use Vestd to manage their EMI scheme. Book a free consultation today to get started.