Home > Projects > Business Tax > Employee Incentives & EMI Share Option Scheme

The Problem

The client had two employees who were key to the future growth of the company. The existing shareholder directors were concerned that the employees may look for opportunities elsewhere and were keen to encourage them to stay with the company by putting an incentive package in place.

The Solution

We quickly established that an EMI Share Option Scheme would incentivise the employees by providing a mechanism through which they can become shareholders in the company.

By utilising an Employee Benefit Trust, the existing shareholders could also extract funds from the company in a tax efficient manner rather than their shareholdings simply being diluted by the issue of new shares to the employees.

Both the company and the employees were happy with our proposed solution so we implemented the EMI share option scheme, taking care of all the EMI share option scheme and Employee Benefit Trust documentation and agreeing the value of the shares with HMRC.

The Result

The two employees have been given targets, which if met, will allow them to exercise the EMI share options over 15% of the shares each, in three tranches over the next 10 years.

When the shares are exercised; the employees will have no tax to pay on the benefit received, the shareholders will receive a payment for the shares (potentially paying tax of 10% due to the likely availability of entrepreneurs relief), and the company will receive a corporation tax deduction for the funds contributed to the Employee Benefit Trust to facilitate the purchase of shares.

Our client found that the performance of the two employees increased noticeably as soon as discussions over the terms were entered into – now that the EMI scheme has been implemented the results should be even better.