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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.
- 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.