Business Owner Series: Part 3 of 9

How do EMI shares work for both employer and employee?

Chris Broome – Chartered Financial Planner

Business Owner Series blog

EMI (Enterprise Management Incentive) shares are a type of share option scheme that is designed to help companies attract, retain and motivate employees.

Employers often want to use share schemes to give employees shares as a way of incentivising them to remain with the business.

Under an EMI scheme, employees are granted options to purchase shares in the company at a fixed price, known as the exercise price.

The scheme is usually created by a resolution of the company’s board of directors and is subject to the approval of HM Revenue & Customs (HMRC).

Once approved, the company’s employees can be granted options over shares in the company.

Tax implications for employees

When an employee exercises their options, they purchase shares in the company at the exercise price.

If the employee chooses to sell the shares at a later date, any gain made on the sale is subject to Capital Gains Tax (CGT).

However, if the employee holds the shares for at least two years from the date the options were granted and at least one year from the date the options were exercised, the gain may be eligible for Entrepreneurs’ Relief and the CGT rate will be 10% on the first £1m of gain.

Seek professional advice

EMI schemes have certain advantages, such as the ability to grant options to employees without triggering an income tax or National Insurance charge, and the potential for a reduced rate of CGT on any gain made on the sale of the shares.

However, it’s important to note that there are certain rules and restrictions that apply to EMI schemes, and it’s always recommended to consult with a tax professional to ensure that you fully understand how the scheme works and how it may apply to your specific situation.

Next steps

Please get in touch to discuss your business and the steps you can take to create long-term stability.

Next in the series – Part 4 of 9: Company profit extraction ideas

The next blog in the Business Owner Series looks at numerous ways business owners can extract profits from their companies. You can read it here.