By Rachel Warriner, associate director and head of corporate tax, RMT Accountants & Business Advisors Ltd
Since it was first launched in the year 2000, the Enterprise Management Incentive (EMI) has been widely used by business owners as a tax efficient way of attracting new staff, encouraging loyalty from existing key employees and giving them all a stake in their employer’s success.
According to HMRC’s latest statistics, there were 5,200 companies who granted EMI options to their employees in the tax year 2023 to 2024 alone.
The EMI is a tax-advantaged share option scheme which allows staff to acquire shares over a period of time at a set price on which no income tax arises and no National Insurance contributions (NICs) are charged when the EMI options are granted.
There can also potentially be no income tax or NICs chargeable when these share options are eventually exercised, while EMI option shares which are exercised and ultimately sold may benefit from Business Asset Disposal Relief, resulting in an 18 per cent tax rate (as of the start of the new tax year) on their disposal.
The start of FY 26/27 has also brought about a widening of the qualifying criteria for the Enterprise Management Incentive, primarily to enable companies that are scaling up to participate alongside start-ups.
Businesses with up to 500 employees, rather than 250 as was, are now eligible to take part in it, while the value of the options that can be made available has doubled, from £3 million to £6 million, and gross assets that a participating company can have rising four-fold, from £30 million to £120 million.
Not all industries or employees qualify for an EMI scheme, so taking professional advice on how it might work for your business is essential, but for those that do, it can offer a flexible option which can make a significant difference to your business’s short and long-term chances of commercial success.
However, it’s important for employers to recognise that not every member of staff is going to be incentivised by share options and that a ‘one size fits all’ approach in unlikely to deliver the outcomes they’re after, especially in light of the workplace changes ushered in during and after the pandemic.
The workplace benefits that you make available, such as private healthcare, gym memberships or motor vehicle purchase schemes, can play a significant role in attracting and retaining staff, while providing the chance to have a hybrid working week, if that’s possible for you, has become fairly commonplace through this decade.
For older workers who might be starting to look towards retirement, the opportunity to reduce their hours in advance of that or offering additional, performance-related payments into their pensions may well encourage them to continue sharing their expertise with you and your team, rather than with a competitor.
Younger employees with plans to perhaps buy a house or start a family might instead prefer a more immediate bonus if they hit their targets, rather than waiting on returns from share sales that may be several years away.
The impact on a business’s operations and commercial performance of either losing or keeping key staff can obviously be highly significant.
Putting the right incentives in place for each employee can make a big difference to their workplace commitment and therefore to the business’s ongoing success.
For further information on the Enterprise Management Incentive scheme, issue around employee incentivisation and all aspects of corporate taxation, please contact Rachel Warriner at RMT Accountants & Business Advisors on 0191 256 9500 or visit www.r-m-t.co.uk