EMI schemes explained

Frequently asked questions

• What is an enterprise management incentive (EMI) scheme?

  The Enterprise Management Incentive scheme (EMI) is a tax-advantaged share option scheme specifically designed for UK-based startups and SMEs. First set up in 2000, EMI has become the most widely used HMRC backed share incentive scheme. EMI helps companies attract and retain key staff by rewarding them with equity in the business.

• How do EMI share schemes work?

  EMIs give employees the option (i.e. the right) to buy shares in a company at an agreed price after meeting certain requirements, e.g. performance and/or service period. The agreed price can be the AMV at the time of grant or a discounted value (Read more about taxation and exercise here). EMI schemes are flexible as conditional milestones and custom vesting schedules can be set to determine the release of equity. They're also incredibly tax-efficient for employees.

• Are EMI setup costs tax deductible for companies?

  Yes. You can easily offset the costs of setup against tax. The Corporation Tax deductions will be equal to the employee’s gain when the options are exercised. In the event that the exercise price equals the market value, the Corporation Tax deduction would equal what would have been taxed without the EMI scheme relief.

• What are the risks associated with EMI schemes?

  There are no upfront tax costs and they are low risk due to the flexibility for designing an option scheme. Poorly-designed schemes - typically those that are overly complicated - can cause headaches. Conditions such as goals and milestones should be tangible and measurable. About half of the existing EMI schemes we see are in some way non-compliant, which can lead to recipients having to pay more tax than is necessary - these schemes must be managed appropriately. Additionally, if the employee leaves before the EMI option is exercised and good/bad leaver clauses are in place then options can lapse and this will leave the employee with no further rights under the scheme. The scheme design and structure are formalised as a legally-binding shareholder agreement.

• Are EMI schemes worth it?

  Data shows that employees are more likely to feel aligned with the interests of shareholders and the board if they have a tangible interest in the company’s ownership. That’s why share options are popular with growing companies who can offer them to attract talented staff. Additionally, EMI schemes are highly tax efficient for both the business and the employee as tax is only incurred on the value of schemes when they're awarded and not at the point they're exercised. While employers get tax deductions, an employee's fully vested EMI shares are eligible for Business Asset Disposal Relief, which means they’re only charged 10% Capital Gains Tax (not the standard 20%) at the time of the sale.

• How can Vestd help me?

  Vestd is an FCA-regulated, digital employee share scheme platform which eliminates the paperwork and reduces the hassle of managing share schemes. Schedule your free, no-obligation consult with us to learn how we can help your business grow.

• What are EMI options?

  EMI options are a type of tax-advantaged share option granted to employees as part of an Enterprise Management Incentive scheme. They give team members the right to acquire shares in the company at a set price in the future.