Issuing EMIs gives companies the possibility to attract and retain human resources by promising equity participation. If specific criteria are met, there are no tax or National Insurance contributions on the initial grant of shares or the growth in value until the shares are disposed of. Follow these key steps to establish an EMI scheme for your company.

Check Eligibility Criteria

Companies need to satisfy certain prerequisites in order to meet the eligibility criteria for being approved to issue EMIs. These criteria usually correspond to the scale of operation, a measure of autonomy, trading conditions, aggregated assets, and other characteristics of the business. Thus, for a company to be deemed eligible, the total gross assets held by it must not exceed 30 million British Pounds. Moreover, the company must employ less than 250 full-time employees across all its departments and operations. Finally, the company has to demonstrate a sufficient functional level, which stands for the ability to carry out independent commercial activity and make transactions.

It must be said that the share itself constitutes an additional criterion. Thus, there cannot be any majority ownership by a single individual or entity. It means that no employee who is employed by the company can personally hold more than a 30 percent ownership stake in the company. This threshold ensures that the company which is aiming at issuing EMIs maintains a sufficient level of autonomy in its governance and operations, rather than being controlled by certain shareholders.

Select Employees

Not all the employees can receive the EMI offer. In fact, there is a list of criteria to be met, including that the employee must dedicate at least 25 hours per week working for the company in his professional field or at least 75% of the total spent working time must be dedicated to his/her professional activities. Similarly, as it was mentioned above, an EMI cannot be granted to the employee whose share is above 30%–this group of employees is, thus, excluded. Finally, there is no possibility to grant EMI to freelancers or part-time workers, who are not associated with the company in terms of employer-employee relationship.

Set Up Sub-Plan

A sub-plan containing rules for the operation of your EMI scheme must be established as a part of your company’s articles of association. This EMI sub-plan should outline details like the maximum number of shares under the option, performance targets, vesting schedule, exercise price methodology, and procedure for granting options.

Obtain Advance Assurance

To receive assurance that your scheme meets all legislative requirements before being implemented, it’s advisable to apply to HMRC for advance assurance. This involves submitting details about your scheme and eligibility. HMRC will then confirm if preliminary approval is granted.

Issue EMI Options

Once advance assurance is obtained, you can go ahead and issue EMI share options in line with your sub-plan rules. Each issuance is done through an EMI option agreement signed by the employee which outlines the option price, number of shares, vesting schedule, and exercise period.

Report Details to HMRC

Within 92 days of granting an employee any EMI option, your company must report specific information to HMRC online. This report should contain particulars of the recipient, grant date, number and type of shares under option, exercise price, and details confirming eligibility.

Maintain Records

Administering an EMI scheme involves maintaining compliant records. All EMI grant paperwork and HMRC reporting submissions should be kept for at least 6 years. You’ll need to continually monitor rules on employee eligibility, working time, and permitted share ownership are still being met.

The above-mentioned points outline the typical process for establishing and running an EMI share scheme. Properly implementing each step enables your company to stay compliant with HMRC regulations while being able to motivate employees through tax-efficient equity incentives tied to the future growth and success of your business.

Although complicated, the process of issuing EMIs can be worthwhile for small companies, whose HR retention practices need additional push. This is why we at ERB pay a great share of attention to our clients, who turn to us asking for help with this undertaking. Our team of professionals makes the process of setting up an EMI scheme simple and controllable, why the client enjoys the final results expressed as ongoing motivation growth amongst his/her employees.