For many businesses, the key to success lies with the people. Finding and retaining talent is becoming more difficult for many companies – with most recent surveys revealing a 112 per cent increase in job searches and around 25 per cent considering leaving their current jobs.
It is great to find employees with the right skills, drive, and determination to work in your business but preventing them from leaving is just as important for businesses to keep in mind.
With an increasingly competitive marketplace, more businesses are turning to Enterprise Management Incentive (EMI) schemes.
This is a great way to increase retention of key staff, by offering them the opportunity to invest in the company.
What is an EMI scheme?
EMI schemes are HMRC tax-approved schemes that allow a company to grant share options to selected employees, meaning that they have the right to purchase these shares at an agreed price.
The most common way this is executed is when the business is sold. Employees can buy the shares at the agreed price and sell them the same day, giving them the chance to pocket the difference. This is an extremely tax-efficient incentive for employees.
What are the benefits of offering EMI schemes?
As no money must be paid by the company, it can often solve the issue of enticing an employee to join or stay at a time when the company may not have cash available to pay in a different type of incentive – such as a bonus.
Not only this but there is no immediate charge to income tax on the employee, so they can be granted these options without any initial tax liability.
If the option price is at the market price of the shares when they are granted, there will be no tax to pay when the shares are purchased either. When the shares are sold, the employee would be subject to capital gains tax on the profit between the option price and sale price.
Additionally, the costs of setting up and administering an EMI scheme is an allowable expense of the business – attracting corporation tax relief.
However, it is important to note that the options granted cannot exceed a total value of £3 million and each employee cannot exceed £250,000.
Not to mention, there are also additional rules regarding which companies and employees are eligible for EMI schemes.
For more help or advice on whether EMI schemes are suitable for your business, please get in touch today.