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Value Of SME Employment Share Schemes Hits Record High

by Robert Lee, Tax-News.com, London

05 October 2015


The value of share options granted to employees through the UK's Enterprise Management Incentive (EMI) tax relief scheme reached a record high in 2013-14, according to international law firm Pinsent Masons.

Pinsent Masons research has revealed that GBP310m (USD472m) was granted via EMI schemes in 2013-14, up 24 percent on the GBP250m granted in the previous year. The total number of companies operating an EMI scheme increased by 14 percent, from 8,590 to 9,820. The average value of share options granted per employee rose by 11 percent to GBP15,400, the highest recorded since the incentive was launched in 2000.

The EMI system was introduced to help SMEs attract and retain staff. It is available to limited companies with fewer than 250 full-time employees and gross assets below GBP30m. An employee can exercise their share options to buy shares worth up to GBP250,000 without income tax or national insurance being payable on the amount, provided the price paid for them is not less than the market value of the shares at the time the option was granted.

Since April 2012, shares acquired through an EMI scheme have qualified for entrepreneurs' relief on capital gains tax (CGT), even if the employee does not meet the usual requirement of holding a minimum five percent stake in the company. This means that employees with share options pay CGT at ten percent when they sell their shares, rather than at the standard rates of 18 or 28 percent, provided the shares are sold at least a year after the option is granted.

Matthew Findley, Partner and Head of Share Plans and Incentives at Pinsent Masons, comments: "An increasing number of smaller companies are recognizing benefits of EMIs. Share ownership can act as a powerful incentive when it comes to competing with bigger businesses to recruit or retain talented employees. As the economy recovers, SME employers are increasingly using the scheme as a way to encourage staff to build their careers with the company rather than look elsewhere."

"Staff with a direct stake in the establishment for which they work are more likely to be driven to see it do well- this will impact positively on growing businesses' performance, stability and long-term prospects. For businesses that qualify for the EMI scheme it really does make little sense not to use it. The set-up is relatively straightforward and the gains are considerable. We expect to see a greater appetite for the EMI share scheme amongst both employers and employees as more and more people become aware of its advantages."

"The EMI employee limit rose to GBP250,000 from GBP120,000 during the previous tax year, which may have contributed to the increase in 2013-14. It will be interesting to see whether there is a similar effect from increases at the start of 2014-15 to the employee participation limits for two other very popular types of tax-advantaged share schemes. These schemes are Share Incentive Plans (SIPs) and Save as You Earn Option Schemes (SAYE), which are mostly used by larger companies than those using EMI."

TAGS: capital gains tax (CGT) | Capital Gains | tax | business | interest | law | share schemes | entrepreneurs | employees | United Kingdom | social security | tax breaks | individual income tax | Tax

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