Consultation on the future of the EMI scheme

In Budget 2021 Rishi Sunak announced a consultation into the future of the Enterprise Management Incentive (‘EMI’) scheme.

The EMI scheme is a tax-advantaged discretionary share option scheme that offers significant tax benefits and is very flexible.

The tax treatment can mean that individuals pay just 10% on any increase in value of the shares, compared to up to 47% plus employer’s National Insurance if they were paid a bonus.

In addition, the company can receive Corporation Tax relief on the increase in value of the shares from the date the options are granted to when they are exercised.

However, there are restrictions on the size of company that can qualify for the scheme, and the type of trade they are carrying on.

The review is looking at how the EMI scheme is operating and whether it should be expanded, and in particular:

• How effective it is at retaining and rewarding key personnel
• Whether that is different in high-growth companies (where they might outgrow the scheme); and
• Whether the scheme is too limited in the size of company and nature of the trades that qualify.

The review of the EMI scheme could mean that it becomes available to a wider range of companies, either due to an increase in the size of company that can qualify or reducing the exclusions from the scheme.

Any changes that result in more companies being eligible under the EMI scheme would be very welcome because, where available, it is usually the preferred route to follow when providing employees with equity in their employer company.

We will be regularly updating the Budget pages of our website. If you would like to discuss the implications, please don’t hesitate to get in touch. Alternatively, book your place on our Budget question time webinar on Friday 5 March 2021 to find out more.