enterprise management incentives (emi share scheme)

enterprise management incentives or emi is a type of employee share scheme. it allows employers to grant share options to key employees, as a reward for their efforts within the business and/or to retain and incentivise key staff.

for information on options and how they differ from shares, read comparing shares options with shares.

the company

to grant emi options, a company must be an independent trading company with:

• gross assets of £30 million or less

• fewer than the equivalent of 250 full-time employees

there are certain trading activities that will not qualify, such as banking, farming, property development, provision of legal services and ship building.

you should also be aware there are rules relating to the independence requirement, the trading requirement and the shares that can be used for emi options. ask a lawyer if you want to find out if your company qualifies.

the employee 

emi shares can only be granted to employees. they cannot be granted to non-executive directors or consultants. the employee must work for the company for at least 25 hours per week, or if less, 75% of their working time. 

employees cannot be granted emi options if they (or their ‘associates’) have a ‘material interest’ in the company whose shares are used for the scheme, or in certain related companies.

the agreement

emi options may be granted under a set of plan rules, or by way of stand-alone emi option agreements. the emi option terms should form a written agreement between the option holder (the employee) and the grantor (the company) which states the main terms of the option, including how and when it may be exercised.

for the company

a corporation tax deduction may be available when emi options are exercised.

for the employee

in order for the employee to receive any favourable tax treatment, the grant of the option must be notified to hmrc within 92 days of the grant date using the ers online service. from 6 april 2024, this deadline will be expanded so that notification must take place before the company’s next emi share option annual return deadline (ie by 6 july of the following tax year).

generally, the employee won’t have to pay income tax or national insurance if they buy the shares for at least the market value they had when they were granted the option. however, if they were given a discount on the market value, they will have to pay income tax or national insurance on the difference between what they paid and what the shares were worth.

hmrc has published a report which evaluates the impact of emi on small and medium enterprises. it concluded that there is substantial evidence that emi is fulfilling its core aims of improving recruitment and retention prospects for small and medium enterprises and supporting their future growth. 

it also helps to:

• align employees’ interests with the company’s

• reward, motivate and incentivise key staff

• retain key staff for a longer-term

• promote share ownership in the company in a tax-efficient manner

ask a lawyer for advice on setting up an emi scheme.