Find out if your company and employees meet the EMI scheme criteria
First, it's important to understand the general requirements of an EMI scheme.
The primary purpose of EMI is to help companies attract and retain talent, and reward employees for their hard work and loyalty with tax-advantaged share options.
With the tax benefits in mind, there are limits to the total value of EMI options you can grant an individual employee (up to £250,000 over a three-year period, based on the UMV at the time of grant).
The company itself can grant up to £3m worth of EMI options, based on the UMV. Any EMI options granted that exceed this limit will not qualify for the tax benefits of EMI.
The next step is to assess whether your company itself meets the criteria to qualify for EMI:
Independence: more than 50% of the ordinary share capital must not be owned or controlled by another company, nor arrangements be in place for that to happen.
Qualifying subsidiaries: if the company has any subsidiary companies they must also qualify. And if it is a property managing subsidiary, it must be at least 90% owned and controlled by the company.
Gross assets: must not exceed £30m at time of EMI option being granted (if part of a Group, all assets of Group included).
Number of employees: must have fewer than 250 full time equivalent employees.
Trading activities: must have a permanent establishment in the UK, and must not have a substantial part of its trading activities in any of the following (there is more detail for each on the HMRC website via the link below):
- dealing in land, commodities or futures, or shares, securities or other financial instruments,
- dealing in goods, otherwise than in the course of an ordinary trade of wholesale or retail distribution,
- banking, insurance, money-lending, debt-factoring, hire purchase financing or other financial activities,
- leasing (including letting ships on charter, or other assets on hire),
- receiving royalties or other licence fees,
- providing legal or accountancy services,
- property development,
- farming or market gardening,
- holding, managing or occupying woodlands, any other forestry activities or timber production,
- shipbuilding, coal and steel production,
- operating or managing hotels or comparable establishments or managing property used as a hotel or comparable establishment,
- operating or managing nursing homes or residential care homes, or managing property used as a nursing home or residential care home, and
- providing services or facilities for another business (whose activities are excluded).
Take our EMI eligibility quiz to see if your company is eligible.
If in any doubt as to whether your company meets the criteria, you can get advance assurance from the Small Company Enterprise Centre (SCEC). Local Compliance, Small Company Enterprise Centre Admin Team, SO777, Newcastle, NE98 1ZZ. Telephone: 0300 123 1083.
Give them a call to see if they think you are clearly eligible or non-eligible. They may then ask you to follow it up formally.
The following information will be needed:
- Registered Office address, Company Registration Number, Corporation Tax 10-digit reference number,
- a copy of the latest available accounts for the company and each of its subsidiaries 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, and
- details of all trading or other activities carried on, or to be carried on, by the company and its subsidiaries.
Finally, the employees being granted the EMI options must meet certain criteria to qualify for the tax advantages of EMI.
Employment: they must be UK tax resident employees (or Directors) who work at least 25 hours each week, or if less, 75% of their working time for the company.Material Interest: they - or together with an associate - must not have (or have the rights to acquire) a beneficial or controlling interest (directly or indirectly) of more than 30% in the company (excluding EMI options but including any other options). 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 and interest in the company, of which the employee falls within the class of beneficiaries, subject to certain specific exceptions.
Holding of equity stake: they must hold the equity (either as an option or once exercised into shares) for at least 24 months in total before the shares are sold, if they wish to take advantage of the Business Asset Disposal Relief (BADR, formerly called Entrepreneur’s Relief) Capital Gains Tax of 10%.
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