Successfully hiring and retaining the right people can make the difference between a business owner being bogged down in day-to-day matters or having the time to consider and make the strategic decisions to allow the business to grow and move forward.
These difficulties are recognised by tax legislation and a possible solution is offered with the Enterprise Management Incentive (EMI). These rules allow the use of a tax privileged share option system for qualifying companies to offer key employees shares in the company at a discount.
An EMI option works by granting the employee an option to acquire usually newly issued shares in the company.
The most common format would be for the option price to be the current value and the option period up to 10 years. This gives the employee the ability to acquire the shares at today’s value any time in the next 10 years.
It would be hoped the employee would endeavour to promote and develop the business to maximise its value and therefore the ‘discount’ being received on the shares they will acquire. The shareholding of the business owner of course also grows at the same time!
There is a tax benefit to the employee through the HMRC-approved system, with no Income Tax charged. The company also has the added bonus of a tax deduction based on the tax that would have arisen had the option not been approved under the EMI scheme.
EMIs are available only to limited companies and there are various qualifying criteria in relation to the company, shares and employee. The use of EMIs can be very effective in providing a succession plan for the business, allowing key employees to acquire an interest in the business over a period of time.
Contact Mark Thompson of Rennie Welch LLP on email@example.com or 01573 224391 for more information and advice.