Incentive scheme could prove valuable, says Shropshire firm

 Alan Jebb, from Dyke Yaxley Chartered Accountants in Shrewsbury, said the Enterprise Management Incentive scheme (EMI) was a crucial component of the Government’s strategy to promote entrepreneurship.

“The scheme aims to stimulate growth in small to medium-sized enterprises and it’s a share option plan created to help businesses retain key employees by offering them shares in the company.

“To qualify, companies must be a UK-based independent trading company, with gross assets under £30 million. They need to employ fewer than 250 full-time employees and must not be listed on a recognised stock exchange.”

Alan said one of the most appealing aspects of the EMI scheme was the tax benefits it offered.

“Employees who receive EMI shares can benefit from Capital Gains Tax treatment when they sell them, and no income tax or National Insurance contributions are payable provided the shares have been granted and exercised at market value.

“Employers can also gain favourable Corporation Tax relief on the growth in value of options from the date of granting through to the point of exercising them.”

Alan said EMI schemes promoted employee ownership and allowed staff to take a vested interest in the company’s success which helped to foster a culture of commitment and drive among employees, leading to improved performance and productivity.

“Companies can customise the terms of EMI options and this flexibility allows businesses to tailor their incentive schemes to suit their specific goals and employee needs.

“Each employee can receive shares worth up to £250,000 at the time they are granted, but the total value of EMI shares granted by a company must not exceed £3 million.”

Alan said EMI schemes could also be helpful for cash-strapped businesses as they allowed for employee rewards without immediate cash outflows – instead of offering higher salaries, businesses can offer share options as an incentive.

But he warned that there were potential drawbacks from offering EMI schemes that employers should be prepared for.

“Issuing shares can lead to a dilution of existing shareholders’ ownership stakes which might not be well received by all your current investors.

“And if employees leave the company before the options have come into the money or if the company does not perform as expected, the EMI scheme may lose its appeal.

“So companies must carefully weigh up the administrative responsibilities and potential dilution of ownership against the scheme’s clear benefits, and it’s important to take professional advice before you decide to go ahead.”