Staff Retention – An Interesting Option (EMI)

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In uncertain political and economic times, staff retention is an even more important issue for small to medium-sized businesses.

With some employers holding off on pay reviews until the Brexit outcome is clear, there is another useful way to incentivise and retain key staff without affecting cashflow.

Enterprise Management Incentive (EMI) share options can be used to reward employees in a tax efficient way. These share options are government backed and can be very flexible in terms of setting conditions for employees including length-of-service milestones, or being performance based.

The EMI share is awarded to an employee as an option, and the option is not exercised either until a specified event – the company being sold, or after a specified time period or on completion of specific criteria (for example after 5 years of service).

EMI options can give employees a greater sense of being part of the company, and a vested interest in growing the business.  As the shares increase in value, they see a return on their hard work and a reward for staying with the company.  If an employee leaves before the set criteria are satisfied, the share option is cancelled and all related benefits lapse – so the business doesn’t lose out either.

So what changes? 

Share options are not actual shares and so current share ownership and the voting / dividend position doesn’t change.

EMI shares have tax benefits.  No tax arises on the award of the EMI option.  On a sale of the company, subject to qualifications, Capital Gains Tax, Entrepreneurs Relief is applied (so a 10% rate, not 20%). But better still for the employee, tax is only incurred on the increase in value of the share from the time when the option is awarded up to the sale value.

Companies offering EMI share options are also eligible for corporation tax relief.  So both the employee and the business benefit.

Sign me up! 

To be eligible to offer EMI shares, your business must not be owned or controlled by another company nor have assets above £30 million.  You cannot offer EMI shares if your business activity is banking, farming, property development, providing legal services, shipping or leasing.

Get in touch with our team today and they discuss your corporate structures and how to best offer EMI shares.

Author: Griffith Smith LLP