Extended Enterprise Management Incentive valuation period to be wound down

Businesses have been reminded of a change in a share option scheme that enables companies to attract and keep key staff by rewarding them with a share of the business.

The Enterprise Management Incentive (EMI) offers generous tax incentives and can help smaller companies, who might not be able to match salaries paid by bigger firms, keep valued staff.

A company can grant share options up to the value of £250,000 in a three-year period. For many start-up firms which need specialist staff, it is a way to reward them and keep them loyal as the business grows.

What are the benefits of EMIs?

This will allow employees to sell the shares and make quite tidy profits. These could of course be subject to Capital Gains Tax.

During the pandemic, HMRC extended the period for which an agreed valuation of shares to be used for EMI options remained valid, provided there were no material changes in the meantime, from 90 days to 120 days.

Now the tax authority has announced that the period will revert to 90 days at the end of the year.

From 1 December 2022 and onward, agreements issued on or after that date will be valid for 90 days only.

How does it work?

A company with assets of £30 million or less may be able to offer Enterprise Management Incentives (EMIs).

·        There will be no Income Tax or National Insurance if the shares are bought for at least the market value they had before being granted the option.

·        Income tax and National Insurance become payable if there was a previous discount on the market value of the shares, which equates to paying the difference between what was paid and what the shares were worth.

Not all businesses can qualify for the EMI and HMRC says those excluded include:

·        Banking

·        Farming

·        Property development

·        Provision of legal services

·        Ship building

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