Introduction
For companies with UK employees, Enterprise Management Incentives, more commonly known as EMI options, can often be their first choice when it comes to offering a share plan to employees.
EMI options are one of the most attractive forms of share option from a tax perspective anywhere in the world, with qualifying employee gains being exempt from income tax and instead being subject to Capital Gains Tax (CGT). Also, employers are generally exempt from employer’s National Insurance and qualify for a valuable corporation tax deduction.
Size of company requirements
A company cannot register for an EMI scheme if it does not meet the following 2 main requirements –
- company must have fewer than 250 full-time employees, based on the number of full-time equivalent employees in the parent company and its qualifying subsidiaries (including non-UK employees)
- The company’s gross assets must not exceed £30 million. For group companies, it is the value of the group’s gross assets that the limit is applied to
If a company was registered for EMI and later exceeded these limits, it will not cause the tax advantages for existing EMI options to be lost, but it will prevent a company from granting any new EMI options while they remain above these levels.
If the company is owned by more than 50% by another company, or if the company is part of group of companies, the EMI scheme must be registered by the parent company.
Trading requirements
Certain trades are excluded from the EMI. For a group, the activities of all group companies will be treated as a single business. Here are the excluded types of business:
- dealing in land, commodities or futures, or shares, securities or other financial instruments
- dealing in goods, otherwise than during an ordinary trade of wholesale or retail distribution
- banking, insurance, moneylending, debt-factoring, hire purchase financing or other financial activities
- leasing (including letting ships on charter, or other assets on hire)
- receiving royalties or other licence fees
- providing legal or accountancy services
- property development
- farming or market gardening
- holding, managing or occupying woodlands, any other forestry activities or timber production
- shipbuilding, coal and steel production
- operating or managing hotels or comparable establishments or managing property used as a hotel or comparable establishment
- operating or managing nursing homes or residential care homes, or managing property used as a nursing home or residential care home
Location of company requirements
There is no requirement that the company be resident or incorporated in the UK but the company must have a ‘permanent establishment’ in the UK.
