Could the Spring Budget signal the end for the approved employee share option, the EMI scheme?
In the Autumn Statement, the Chancellor surprised employers and advisors alike by abolishing the Employee Shareholder Scheme (‘ESS’) with immediate effect.
Whilst there is currently no indication that he intends to do the same with the established Enterprise Management Incentives (‘EMI’) scheme in the Spring Budget – due to be delivered on the 8th March 2017 – it’s worth bearing in mind that it could be subject to change.
The EMI scheme is very generous and effective in motivating and locking in key employees. It allows an employer to reward and incentivise selected employees with tax favoured share options. The company is able to grant employees with the option to purchase shares in the company for a set price.
The employee and the company both receive tax advantages – the company is given a deduction from their corporation tax bill and the employee benefits from receiving shares at (usually) a significant discount.
On a future sale of the company, the employee is taxed on their share of the growth in the company at the lower rates of capital gains tax (10%, provided Entrepreneurs’ Relief applies) as opposed to paying a bonus to reward performance which would be subject to income tax at significantly higher rates (40/45%).
If you are considering incentivising your employees in this way, it may be wise to get the scheme in place now ahead of the budget on the 8 March 2017; just in case changes are made that may affect the generosity of the scheme, or it is abolished altogether.
This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.
The information was correct at time of publishing but may now be out of date.