Talking Tax and Incentives: Why EMI options?

Michael Birchall from our Rewards and Incentives team discuses five key reasons you should consider EMI options when incentivising your employees.

1. Recruitment, retention and incentivisation
EMI options align employees’ interests with shareholders’ and are seen as a win-win – they provide a massive incentive for employees to join and stay with the company, grow your business and help to sell it, so that they can share in the company’s success by realising the value in the underlying shares. As a result, they can provide significant benefits for both you and your employees.

2. You keep control
Options offer employees the opportunity to buy shares in the future, not to acquire shares upfront. You don’t give away any shares in your company until the options are exercised. You can even decide to limit the time of exercise to when the company sells, avoiding all of the hassle of letting employees get hold of shares, and the resulting rights of a shareholder, beforehand.

3. Flexibility
You have the discretion to choose which of your employees receive EMI options and can incentivise those employees on your terms. For example, exercise can be made subject to performance conditions being met (whether these relate to the performance of the employee and/or the company as a whole). In addition, the price the employees pay to acquire the shares when they exercise their option can be set at a level that works for you.

4. Tax efficiency on exercise
The exact tax treatment when the options are exercised, and the resulting shares are sold, will depend on the circumstances. Certain criteria must be met for options to qualify for favourable EMI tax treatment. However, the general tax benefits of a qualifying EMI option as a government-backed employee incentive are unparalleled, achieving 20% or potentially even 10% capital gains tax rates on qualifying gains. They are a unique and incredibly valuable incentive.

5. Low set up costs
EMI options can help you attract and retain the best people with low upfront costs and no immediate tax charge upon grant for either the company or the employees – although given the tax breaks hinge on getting the details right so it pays not to cut corners on implementation!

The earlier you set up your company’s EMI scheme, the greater the tax benefits and incentive impact, and if you get close to a sale there comes a point where you are no longer able to grant them at all. Get in touch with the team here at Lewis Silkin if you would like to learn more.

Disclaimer: EMI options are subject to qualifying conditions and are not available for all companies. The information in the video is only meant as a broad summary of key principles, and must not be relied on. The information was correct at the time of publishing on 19/06/24 and has not been updated since.