We act for well over 100 SME tech companies as well as many other start-ups and scale-ups. Often they can’t match larger competitors on salaries so offer share options to their employees to incentivise them to join on a lower salary but with a potentially substantial payday if the company exits at a substantial value.
Enterprise Management Incentive scheme or “EMI” is the obvious choice for such companies as it is inexpensive to set up and offers major tax benefits, notably Capital Gains Tax at a reduced rate of 10 percent although there may also be income tax and national insurance to pay. Proper tax and legal advice on structuring the EMI scheme is vital to make sure that the maximum benefit can be derived by both the employer and employees.
However, EMI won’t work for everyone and there are limitations to the circumstances in which EMI schemes can be set up. The major points in this context are:
- The company must have assets no greater than £30 million;
- The total value of the share options issued cannot exceed £250,000
- Certain types of business are not entitled to set up EMI schemes, notably:
- legal services
- property development
- banking
- farming
Once you have set up the scheme, you also need to comply with a range of requirements and deadlines when granting options, notably getting HMRC approval of the valuation (which lasts for 120 days) and notifying grants to HMRC within 92 days of the grant.
We have set up many EMI and other option schemes for clients and are happy to answer your questions and discuss how we might assist you.
For further information, please contact Simon Halberstam, head of Technology Law at SMB solicitors – simon.halberstam@smb.london
Authored by David Martin and Simon Halberstam, partners in the SMB corporate/tech teams.