The best choice for employee share option incentives
EMI SHARE OPTION SCHEMES ARE OUR CORE BUSINESS
The EMI share option scheme is a Government approved, tax beneficial and very flexible way of incentivising your staff. In a nutshell, EMI is the best type of share scheme for employees and the company.
SO WHERE DO YOU START?
OUR OFFER TO YOU:
If you want to contact us straight away – call Jerry Davison on 01392-432654 or email jerry@millconsultancy.co.uk
SOME USEFUL BLOGS TO BEGIN WITH?
OTHER SHARE SCHEMES
Most companies will be eligible to set up an EMI scheme but if you’re not, there are a few alternatives, including growth share schemes and CSOP.
A share option agreement gives someone the legal right to buy a company’s shares in the future, but at a price that is fixed today. If the value of the company increases over time, the option holder could make a significant profit when they sell their shares, which make options very useful for companies that want to incentivise key employees.
Option schemes are very popular with entrepreneurial companies who can offer share options to help them employ talented staff. Many well-established businesses use option schemes to attract and retain key people. The chance to buy shares, to be a stakeholder and benefit in the company’s growth alongside the owners is a powerful motivation when offered in addition to the usual salary package. Aside from the modest set up costs, there are no cash costs associated with share options, so they’re not a drain on resources.
An EMI (Enterprise Management Incentive) share option scheme provides significant tax advantages to employees which substantially boosts the incentive value. Put simply, an ‘EMI’ scheme is by far the most tax beneficial structure for staff.
The EMI was introduced in 2000 to assist growing companies in attracting and retaining key employees and to reward those employees for taking the potential risk to work for such companies.
The main tax benefit of an EMI scheme is that employees do not have to pay the income tax that would normally be charged on the market value of any shares or options granted to them. If employees are given options under an approved EMI, they are only charged capital gains tax at 10% on the increase in value over what they pay for the shares (the option's 'exercise price'), so long as that price is at or above the market valuation of the shares on the date of granting the options.
This value is agreed upfront with HMRC as part of the process. Please see the infographic below which illustrates the benefits, and have a look at our FAQs which explain everything in more detail. There are also some explanatory videos below or here.
Alternative schemes other than EMI are discussed here.
Jim is granted options worth £3k at a value agreed with HMRC.
Under an EMI scheme Jim would be charged 10% capital gains tax on any profit only when he sells the shares. Without an EMI scheme he would be charged PAYE of up to 45%.
The value of the shares rises to £50k.
When the shares are sold, Jim makes a gain of £47k net of the cost of his shares. Under an EMI scheme he would pay under £4k in tax. Without the EMI scheme Jim might have to pay out over £21k.
There is a lot of flexibility for designing an option scheme and it’s best to discuss this with us. You can structure the timing of when staff can ‘exercise’ their options and buy their actual shares in all sorts of ways, for example they could be allowed to buy their shares over a period or on a sale of the company (an 'exit' event). To protect the business, most schemes provide that if an employee leaves the company, then they automatically lose their options or shares, although this can be subject to the board’s discretion or good leaver provisions. The option shares can be a different class of ordinary share that could for example be non-voting and subject to buyback if the employee leaves. The option will be formalised in a legal contract, which will include all the necessary rules and conditions.
Some of the matters to consider when designing an EMI scheme will include the following, all of which we will help you with:
- Which employees should get EMI options?
- How many EMI options should be granted?
- What price should be paid for the shares?
- Should there be any performance criteria for vesting?
There are three key terms you need to understand for option schemes:
‘Grant’ – the award of the EMI share options to an employee
‘Vest’ – means the date from when the option rights can be ‘exercised’ i.e. when the employee can actually buy the shares.
The EMI Full Solution Package – everything you need to get your EMI scheme in place –
We are a small company employing fewer than 20 people so the process of setting up a company share scheme was pretty daunting. The Mill Consultancy worked with us at every stage to make sure we understood the process and got the paperwork right. We’re proud of what we’ve achieved for our staff and couldn’t have got there with any degree of confidence without the expertise and patience of the Mill Consultancy.
PRIMER DESIGN
We have set up well over 400 EMI schemes, and for all types of industry sector. It's one of our core activities and our approach is personable but highly efficient. Typically we can deal with the documentation by phone, post and email but if you would like a ‘full service’ basis, which would include face-to-face meetings (which can encompass presentations to staff for example) we are very happy to undertake this too.
There are other types of share schemes available but for most growing SMEs we consider that EMI is the best if the scheme is for your ‘key’ staff. If the scheme is for a larger number of employees, please let us know, as there are other forms of scheme,
such as the CSOP (company share ownership plan), or an ‘unapproved’ scheme for non-executives and non-employees that we can help you with.
Accountants
We have worked with a number of accounting firms to set up EMI and other schemes for their clients. Please contact Jerry Davison to discuss how we can work together.
We chose the Mill Consultancy to create our share scheme based on the all inclusive package (i.e. including the company valuation and having no hidden extras) and the price which was extremely competitive. We were very happy with our decision. Jerry at Mill Consultancy was fast and effective whilst always maintaining great communication and being happy to help with any questions we had. What to a small company had seemed a daunting task turned out to be a very smooth procedure indeed and all thanks to Jerry for that. It is very easy to recommend the Mill Consultancy to you for your EMI share scheme.
Rodney Higgins - CEO - VSR2 Limited
Jerry set up our EMI scheme and I can’t recommend him highly enough; he provided us with all the advice and documentation and dealt with HMRC to get us a heavily discounted option.
Cupris Software