Rewarding Employees And Tax Benefits | Davis Blank Furniss Solicitors

Whilst the M&A market continues to gain momentum as confidence returns to the economy,  EMI share option schemes still remain very popular in incentivising key employees/executives.  EMI schemes are excellent tools for SMEs in a wide range of sectors given the tax efficiency and flexibility available to an employer in choosing how they operate.  A brief overview of the rules and benefits of EMI Options are detailed below.


There are a number of statutory rules relating to the creation and exercise of EMI share schemes that are strictly enforced.  The primary conditions can be summarised as follows:

  • At present, the total value of shares in a company which may be subject to the grant of EMI options is £3,000,000.  In terms of an individual EMI option holder, the upper limit is currently £250,000.
  • A qualifying company must be independent and satisfy a gross assets test as well as be a trading entity.
  • A qualifying company must also have a UK permanent establishment and have less than 250 employees.
  • An individual benefiting from an EMI option is required to be an employee and who works 25 hours a week (or 75% of his working time if that minimum number of hours is not met).
  • The employee on his own or with his associates (as defined by statute) must not have ownership of or ability to control directly/indirectly more than 30% of the ordinary shares of the qualifying company.


The relevant benefits of an EMI scheme can be summarised as follows: –

  • Absolute flexibility for the company in determining how the EMI options will operate (in terms of performance/targets or indeed a loyalty period).
  • Employees are incentivised in just the same way as the key shareholders of the company and therefore have common goals.
  • No Income Tax or National Insurance Contributions (NICs) are payable on the grant of the EMI options.
  • Provided the exercise price of the EMI options is not less than the market value of the shares when the option was granted, no Income Tax or NICs is due on exercise.
  • On disposal of the relevant shares, the relevant employees gain will be subject to Capital Gains Tax at a far lower rate than Income Tax.
  • There is every possibility that Entrepreneurs’ Relief is available on the disposal of EMI shares at a rate of 10%, provided the employee holds the relevant shares or share options (in aggregate) for the 12 month period ending on the date of sale, and, remains employed by the trading company during that time.
  • There may also be corporation tax deductions available to the company when the EMI options are actually exercised.


Key employees in high growth companies can continue to be rewarded in a tax efficient and cost effective way by utilising EMI options.  To ensure compliance, quality professional advice is an absolute requirement.

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