The government has provided attractive tax breaks for employee shares. Some of the most popular schemes that many of our clients have used include the Employment Management Incentive Schemes (or EMI Schemes).
These schemes enable current business owners to continue to control their business and all the shares as they do now, while also incentivising key staff to be motivated to grow the business as stakeholders.
The EMI scheme enables business owners to issue share options to employees.
"If you pick the right people and give them the opportunity to spread their wings—and put compensation as a carrier behind it—you almost don't have to manage them." — Jack Welch
You can enable options for employees to buy shares in the company at a certain date, or crystalise an event such as an external sale of the company.
The EMI fixes the cost for employees buying shares now, but when they come to exercise the option, the shares may be worth many times that number. In addition, the valuation of shares for EMI purposes that is agreed with HMRC for private companies can be heavily discounted, whereas the proceeds from an external sale may not be. On top of this, employees benefit from company growth whilst they hold the options.
Don’t forget, you can benefit from tax reductions too. Shares acquired by employees in this way currently qualify for Entrepreneurs Relief. This means that when they are sold, any profit made (for example, the difference between the option price and the sale price) is only taxed at 10%.
Our team at Lucentum can help you set up everything, including scheming and agreeing the share option valuations with HMRC, as well as holding your hand through the process from start to finish.
If you would like know more about how EMI schemes might be of benefit to you and your business, then please contact us today.