Last updated: 13 August 2024.
Small and medium-sized enterprises can have a tough time of it. Competing against huge companies often leads to smaller concerns being pushed aside.
However, there are many ways a small business can more than hold its own. And the Enterprise Management Incentive (EMI) is one of them.
EMI is an employee share options scheme that has major tax advantages. It isn’t open to all businesses, but for those that qualify, it’s a great opportunity.
In fact, over 16,000 UK-based companies operated one of HMRC's tax-advantaged employee share schemes in the 2020/21 tax year. The most popular? EMI, of course.
The purpose of the scheme is to help small companies grow and retain their staff while preserving cash - plus it benefits employees too.
Download our free guide to learn everything there is to know about EMI.
EMIs are usually open to businesses that have less than 250 employees on their books and have £30 million in gross assets or less.
There are a few other conditions too for both employer and employees, so it’s important to check beforehand. (Take our two-minute quiz to see if your company qualifies).
Businesses can offset the cost of their EMI scheme with the company’s liability and tax benefits their employees get. Plus, once exercised, qualifying shares are eligible for a Corporation Tax (CT) relief.
That makes an EMI scheme a cost-effective alternative to a bonus or salary bump - helping small businesses keep cash in the bank but also incentivise their teams.
Under EMI, employees' options qualify for Business Asset Disposal Relief - so employees will only pay only 10% Capital Gains Tax (CGT) on any gains they make, as opposed to the standard 20%. (Conditions apply).
Read our full breakdown of the tax benefits for the employer and employees.
Employees don't have to pay income tax or make any National Insurance (NI) contributions when their EMI options are granted. They may be liable for income tax and NI when they come to exercise their options.
Exercising is when an employee pays the exercise price to receive their shares.
As well as designing a vesting schedule, small business owners can identify performance goals that employees must hit before they can access all of the options allocated to them and exercise them.
And in turn, boosts productivity and team performance which massively benefits the business. Think of it as a long-term employee incentive that helps small companies smash long-term objectives.
Check out our equity milestones guide for inspiration.
Hiring new recruits is an expensive process, both in terms of time and money.
Research by Oxford Economics and Unum states that the average cost of turnover per employee (earning £25,000 a year or more) is a staggering £30,614.
However, when employees feel that their employer values them and wants to do the best for them, they’re far more engaged and likely to stay where they are.
We collected a load of data in response to the Government's call for evidence on the effectiveness of EMI.
As part of that, we asked our customers if they believe that their EMI scheme improves retention and a whopping 95% agreed that it does.
If you are recruiting, you’ll find that the best talent out there will be attracted to businesses that offer awesome employee benefits.
That covers a huge amount of things but schemes like EMI can be very attractive to prospective new employees.
In fact, our latest employee benefits survey revealed that one in three Brits would be swayed by a company share scheme if it was a toss-up between two companies.
And our EMI consultation report revealed that 93% of our customers feel that their EMI scheme helped them on the recruitment front too.
We mentioned employee engagement earlier on, and when you offer an incentive scheme like this, you’re helping employees feel like they belong.
And this has everything to do with the Ownership Effect. When an employee owns (or has the opportunity to own) even a fraction of equity in the business, they're more likely to be invested in its success.
It instils a sense of pride and a commitment to work together to ensure the business thrives.
Don't let the big names bag all the talent!
When it comes to staff retention and new recruitment, a lot of it is down to going one further than your competitors.
Despite the incredible benefits, many UK startups and SMEs, aren't aware that schemes like the Enterprise Management Incentive exist.
So the fact that your business does, means that you have an advantage over them and larger businesses that wouldn't qualify for EMI (even if they wanted to).
Most businesses (and many of our customers) agree that their EMI scheme has helped them grow their business - basically as a culmination of all the points mentioned above.
And that growth massively contributes to a business's overall value.
For startups, fast growth is key, but growth with the right employees is what it’s really about. Keeping employees on board and fostering loyalty is a key element in business success.
While some employee incentives can be quite costly for businesses, this isn’t one of them but also has a mega benefit for everyone.
There's a misconception that setting up an EMI scheme is costly and complicated, but it doesn't have to be, not if you choose an equity management platform.
With Vestd you can:
Join the many UK business owners who use Vestd to manage their EMI scheme. Book a free consultation today to get started.