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.

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Option schemes are very popular with early stage entrepreneurial companies who can offer share options to help them employ talented staff. Many more established businesses also use option schemes to attract and retain key people.

An EMI share option scheme provides significant tax advantages to employee option holders and substantially boosts the incentive value. The EMI was introduced in to assist growing companies in attracting and retaining key employees and to reward those employees for taking the 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.

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. 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. 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:.

We chose the Mill Consultancy to create our share scheme based on the all inclusive package i. 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. We have set up well over EMI schemes, and for all types of industry sector. It's one of our core activities and our approach is personable but highly efficient.

Enterprise Management Incentives and 10% tax | Entertainment and Media Group | ICAEW

If the scheme is for a larger number of employees, please let us know, as there are other forms of scheme,. 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. The EMI Full Solution Package — everything you need to get your EMI scheme in place —. EMI - the Enterprise Management Incentive scheme Retain and reward key staff with share options. Your EMI questions answered - FAQs Read more.

Are you an employer? Lots of info, FAQs, and videos, and do please download our guide to EMI Read more. Are you an accountant? See 'Our experience' below Read more. How does an EMI scheme work? Some of the matters to consider when designing an EMI scheme will include the following, all of which we will help you with: Real examples of EMI scheme structures. There are three key terms you need to understand for option schemes: The options were structured so that they vest over the following two years, with half of their options each vesting on the first and second anniversaries of the date of the grant.

The options vested immediately, on the date of grant. The exercise price was set at the market value agreed with HMRC.

This type of vesting structure is very popular with clients because i it focuses everyone on building value towards a sale and ii it avoids the admin hassles and other issues caused by having employee shareholders prior to an exit. A founder shareholder had built his company to a point where turnover and profit were healthy and he was looking to exit in 3 to 5 years.

In this way, the founder reserved for himself some of the value he had built in the company. This structure entailed some straightforward amendments to the Articles of Association. Fifteen employees at a software company were granted options of between 0. The options vested on an exit event. The exercise price was set at zero, whereas the market value agreed with HMRC was 50p per share. This is fine and just means that on an exit, when the shares are sold to the acquirer, the option holders will have to pay income tax on the first 50p of any gain per share, because the discount off the agreed market value is a taxable benefit.

Rodney Higgins - CEO - VSR2 Limited. Accountants We have worked with a number of accounting firms to set up EMI and other schemes for their clients. What are the big advantages of EMI options? No income tax or national insurance is payable when EMI options are granted. The employee can also use their annual CGT exemption.

Options provide a very tangible incentive for key employees to stay with the company. The prospect of a rewarding capital return within a foreseeable period strongly encourages retention of staff, especially as most option agreements provide that options lapse automatically if anyone leaves. It can be a great motivator if all stakeholders are working towards a profitable exit, with everyone focused on building shareholder value.

The costs of setting up and administering the EMI will be deductible expenses for the company against corporation tax. Also, after exit, the net market value of the options exercised by employees may be an allowable expense, similar to expensing normal employee remuneration. Companies may set the option price at a discount to the agreed market value or even at nil.

However, where this is the case then, on exercise of the option, income tax will be payable on the discount the excess of the market value of the shares on the date the option is granted over the exercise price paid by the employee. How they work Watch Video. The basics of EMI Watch Video.

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