EMI driving the uptake of tax-advantaged share schemes

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More companies than ever are operating a tax-advantaged Employee Share Scheme (ESS), 15,340, to be specific, in the tax year ending 2020. Up 6% from the previous year.

That’s according to the UK Government's latest Employee Share Scheme Statistics. 

The report covers the four HMRC-approved share schemes: Save As You Earn (SAYE), Share Incentive Plans (SIP), Company Share Options Plans (CSOP) and Enterprise Management Incentives (EMI).

It’s the stats about EMI that caught our eye. Out of the 15,340 companies, over 12,500 opted for EMI. So what’s the reason for this?

What's so great about Enterprise Management Incentives?

Approved by HMRC, EMI is an employee share option scheme offering huge tax advantages for both employer and employee. It's an option scheme designed to help eligible UK-based SMEs:

• Attract talent
• Align teams
• Retain talent
• And reward teams

As the Government states, the EMI scheme is an “attractive means of remuneration”. The report also highlighted other positives...

Highlights

Tax relief

Employees who were recipients of shares under the four tax-advantaged schemes benefited from more than half a billion pounds of tax relief in the tax year ending 2020. EMI accounted for the largest chunk of this relief.

There’s no tax to be paid when granting EMI options. Recipients do pay Capital Gains Tax on any gains after they cash in but at a lower rate. Though, shares must not be sold within 24 months of the option grant.

Greater gain

Eligibility for EMI schemes is restricted and so fewer employees utilise them than other schemes. However, each employee can be granted options up to £250,000 in value, which is higher than the other schemes allow.

EMI has the largest total and average relievable gain per employee compared to CSOP, SAYE and SIP. In other words, each employee with EMI options is eligible for a greater amount of tax relief.

Source: National Statistics

Food for thought

Exercising EMI options

Interestingly, the number of employees exercising EMI options, though steadily rising, is significantly lower than those exercising SAYE options. For those who don’t know, exercising is when an employee converts their options into actual shares. 

Perhaps there’s more work to do here to educate employees who have EMI options vesting. Companies should celebrate the launch of an employee share scheme as a means to reward the team. And provide educational materials to highlight the positives of the scheme.

On the other hand, EMI is specifically for UK SMEs and startups. Supposedly, 90% of all startups fail, so there will always be far fewer options exercised than granted. If a company ceases operating, employees can't exercise the options. It’s as simple as that.

Government call for evidence

The Employee Share Schemes Statistics follows the Government’s call for evidence. Keen to evaluate the scheme's success, the Government asked UK businesses and experts to share EMI-related data.

In response, we compiled (what’s believed to be) one of the biggest caches of data on the subject in UK history and submitted it as evidence. Data derived from over 5,000 sources, including our customers.

In doing so, we highlighted the benefits of the scheme and made recommendations in the hope that more UK SMEs can benefit from it in the future. 

An EMI revolution

Results from our deep data dive revealed that nearly all businesses operating an EMI scheme saw improvements in key areas: growth, development, retention and recruitment.

• 93% of Vestd’s customers said EMI has helped their company to grow and develop.
• 95% said that EMI has actively helped to improve employee loyalty.
• 93% confirmed that EMI has helped with their recruitment efforts.

Inspired, we launched a campaign to spread the word because, despite the increase in the number of companies operating an EMI scheme,  plenty of eligible companies are missing out, unaware of the benefits.

That’s why we’re campaigning for an #EMIrevolution.

Talk to a share scheme specialist today about setting up an EMI scheme.