Reward your team with EMI option schemes

Frequently asked questions

• What are EMI share schemes?

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

• How do EMI share schemes work?

  EMIs work by giving employees the option (i.e. the right) to buy shares in your 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 added to determine the release of equity, but they're also designed to be tax-efficient to help UK startups and SMEs grow.

• Are EMI set up costs tax deductible?

  Yes. You can easily offset the costs of setup against corporate 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. Employers can structure the vesting schedule, i.e., the timing of when staff can ‘exercise’ their options (buy their actual shares). 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 leaves 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 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, employees are charged only 10% Capital Gains Tax (not the standard 20%) at the time of the sale. Find out more by talking to an expert.