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Date of publication: May 2012

EMIs are share options which are approved by HMRC and have a beneficial tax treatment.

Ordinarily any shares or share options given to an employee will be subject to employment taxes, including National Insurance- either when the shares are given, or the options granted and exercised.

EMI options are not subject to employment taxes when they are granted, unless they are granted at a discount, or when they are exercised. This represents a potential tax saving of over 50%.

Measures are also being introduced to extend to 10% tax rate for gains on shares sold by entrepreneurs to EMI shares.

General Restrictions:

• Maximum of £120,000 of options can be issued to each employee and £3 million in total. This is expected to increase to £250,000 shortly.
• The options must be for ordinary, irredeemable shares which are fully paid up.
• The options must be exercisable within 10 years.
• HMRC must be notified within 92 days of the option being granted. There are also annual reporting requirements.

Rules for the company:

• Cannot be controlled by any other company;
• Gross assets must be less than £30 million for the company and, where applicable, the group;
• Must have fewer than 250 full time employees;
• Must be a trading company, carrying out a qualifying trade, or the parent company of a trading group;
• Non-qualifying trades include dealing in land, receiving royalties, hotel management and similar high asset backed businesses as well as certain professional services;
• Does not have to be resident in the UK, but must have a UK trading presence.

Rules for the employee:

• Must be an employee of the company or its subsidiary;
• Must work at least 25 hours per week for the employing company or, if less than 25 hours, then 75% of their total working time;
• Cannot own more than 30% of the employing company.