Employee management incentives (EMIs) were introduced in the UK to provide small and medium enterprises (SMEs) with an additional way to remunerate their employees. This can be of benefit to small, innovative companies that need to recruit the staff to grow their business but do not have the levels of cash available to compete with larger firms in offering competitive remuneration packages. They also have problems with information asymmetry as more information is available to potential employees from larger companies than from SMEs.

The EMI scheme is intended to meet the need by increasing the attractiveness of share-based remuneration that can be offered to employees with tax advantages. The employees can acquire and hold shares in the companies that employs them, giving them a stake in the company and allowing the employer to incentivise the employees.

To qualify for the EMI a company should have a permanent establishment in the UK and should have gross assets below GBP 30 million; be carrying on a qualifying trade; and have fewer than 250 full time employees. A qualifying employer may offer to employees qualifying share options up to a value of GBP 250,000 per employee during a three-year period. The total market value of unexercised qualifying share options granted under the scheme cannot exceed GBP 3 million.

When an employee exercises the options the company can receive a corporation tax deduction for the gain made by the employee.

If the options are granted at market value, no income tax or national insurance contributions are payable by the employee on the increase in share value between the date the options were granted and the date they were exercised. A subsequent sale of the shares is subject to capital gains tax rather than income tax, and it may be possible in some cases to obtain Business Asset Disposal Relief if there is a period of at least two years between the date the option was granted and the date of disposal of the shares.

Call for Evidence

The call for evidence aims to gather information on the operation and effects of the EMI in practice and the possibility of extending the relief. Information is requested on the extent to which the EMI is currently fulfilling the tax policy objective in relation to helping SME recruitment, and helping SMEs to grow and develop.

The UK government is looking for comments on whether companies that are ineligible for the current scheme, as they have grown to a size above the qualification limits, are experiencing difficulty with recruitment. Comments are invited on whether the government should expand the EMI scheme to support high growth companies, and if so how this extension could be designed.

Comments are also invited on whether other types of remuneration could offer a similar benefit in terms of recruitment for high growth companies.

Comments are invited by 26 May 2021.