Full EMI share options eligibility details for UK-based SMEs
Before creating an EMI options scheme, you need to first be certain that your company and employees meet the scheme criteria established by HMRC. As long as they meet the criteria, you will be eligible for an EMI share scheme.
Here are the full requirements you should be aware of if you are seeking eligibility for an EMI option scheme.
General requirements for EMI
There are a few general requirements an EMI option scheme must meet:
- The purpose of the scheme must be to retain or recruit employees and not to avoid tax.
- You may only grant an employee a max value of £250,000 in options, based on the unrestricted market value (or UMV).
- The most that a company can grant is £3m in unexercised options at any one time, based on UMV. If any options are granted over these limits, then they will not be qualifying.
Additional details on these requirements can be found on GOV.UK.
Company requirements for EMI
You must also assess whether your company itself meets the criteria to qualify for EMI. The key criteria are as follows:
- Your company must be independent. More than 50% of the ordinary share capital must not be owned or controlled by another company, nor should there be any arrangements already in place for that to happen.
- If your company has any subsidiary companies, they must also qualify for EMI. If they are a property managing subsidiary, they must be at least 90% owned and controlled by your company.
- Your gross assets must not exceed £30m at time of EMI options being granted. If part of a group, all assets of the group must be included.
- You must have fewer than 250 full-time employees.
- Your business must have a permanent establishment in the UK.
Additionally, your business must not have a substantial part of its trading activities, or provide services or facilities for other businesses, in specific disqualifying industries. These industries are:
- Land, commodities, futures, shares, securities, or other financial instruments.
- Goods, other than ordinary trade of wholesale or retail distribution.
- Financial activities, including leasing, banking, insurance, money-lending, debt-factoring, and hire-purchase financing.
- Receiving royalties or other licence fees.
- Providing legal or accountancy services.
- Property development.
- Farming or market gardening.
- Forestry activities, including holding, managing or occupying woodlands, and timber production.
- Coal and steel production.
- Operating or managing hotels or comparable establishments.
- Operating or managing nursing homes or residential care homes.
Further details on qualifying businesses can be found on the GOV.UK website.
If in doubt as to whether your company does meet these criteria, advice can be sought from the Small Company Enterprise Centre (SCEC). Contact them at:
SCEC Local Compliance
Small Company Enterprise Centre Admin Team
Or by telephone: 0300 123 1083.
If you feel you may not qualify, a recommended first step is to give them a call to seek their opinion on your eligibility. They may then ask you to follow up formally by mail at the address above.
You will need the following information to make a formal request to the SCEC:
- Your registered office address, Company Registration Number, and Corporation Tax 10 digit reference number.
- A copy of the latest available accounts for your company and each of its subsidiaries (if applicable) with a permanent establishment in the UK.
- An up-to-date copy of the Memorandum and Articles of Association of the company and details of any proposed changes.
- Details of all trading or other activities carried on, or to be carried on, by the company and its subsidiaries (if applicable).
Employee requirements for EMI
Finally, you need to make sure your employees themselves qualify for your EMI options scheme. The key criteria to be aware of are as follows:
- Eligible individuals must be employees (or directors) who work at least 25 hours each week, or devote 75% of their total weekly working time to the company.
- Employees, either individually or together with an associate, must not have a beneficial or controlling interest (directly or indirectly) of more than 30% in the company, or have the rights to acquire such interest. For this purpose, associates are:
- business partners;
- spouses and civil partners;
- parents, children and distant direct relatives;
- trustees of trusts where the employee (or their relatives above) is or was the settlor;
- in certain circumstances an employee benefit trust;
- trustees of other discretionary trusts that hold an interest in the company, of which the employee falls within the class of beneficiaries, subject to certain specific exceptions.
- Employees must hold their equity, either as unexercised options or once exercised into shares, for at least 24 months in total from date of grant, for them to gain the maximum tax benefit of only being charged CGT at 10% at sale, over and above the value when granted.
For more information on employee requirements, you can seek additional advice from the GOV.UK website.
Once you are certain that your business and its employees qualify for an EMI options scheme, your next step is to proceed with the scheme setup process.