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what is an EMI option?

27 March 2018

In this video you will find out some of the advantages and conditions surrounding enterprise management incentive (EMI) options and why they could be of benefit to your business.

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transcription

Speaker key
Beth Dowson



Share options are increasingly forming part of employer remuneration packages. The idea being that the employer grants the option holder the opportunity to buy shares in the future at a particular point in time on the terms including the price agreed at the moment when the option is granted.

Enterprise Management Incentive, or EMI options, are a particular type of employee share option which the Revenue came up with a few years ago; and they have tax advantages compared to other non-approved tax options. The main tax advantage, and the main reason for using an EMI option as opposed to an unapproved option, is to try and get the growth in value of the shares from the day on which the option is granted to the day on which the option is exercised; and the shares are acquired out of employment income, where you could be paying income tax of up to 45% at the moment, plus potentially national insurance contributions, and into capital gains tax instead where at the moment the highest rate you will be paying is 20% and it could even be lower than that. However the Revenue doesn’t give anything away for free and so there are lots of conditions that have to be satisfied in order for an option to qualify as an EMI for tax purposes.

Some of those conditions apply to the individual option holder, for example one of them is that the individual must work at least 25 hours a week, or if less at least 75% of their working time in the business in question. Some of the conditions relate to the company who is granting the option for example the company mustn’t have more than 250 full time equivalent employees so this is a good one for startups because clearly that box is ticked.

There are other conditions as well in relation to the option and the document but essentially if you can jump through those various hoops and qualify for EMI the tax advantages can be quite significant. In addition to the advantage I mentioned earlier in terms of getting that growth and value into capital gains tax, when an employee sells shares that they have acquired under a qualifying EMI option they can also potentially claim entrepreneur’s relief which reduces their capital gains tax bill down to just 10%.

So if you’re considering granting options to some of your employees or directors it’s always worth checking to see if you can qualify for EMI first because otherwise you might be missing a trick.

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The opinions expressed on this video are provided for the purposes of general interest and information and should not be relied upon. They contain only summaries of aspects of the subject matter at the time of publishing and do not provide comprehensive statements of the law. They do not constitute legal advice and do not provide a substitute for it. So why not talk to us and seek advice that's tailored to you? You can look up one of our experts on this website or call on 0370 270 6000.

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