Enterprise Management Incentive

Transcription

1 Enterprise Management Incentive

2 The opportunities and the requirements Many companies have either set up EMI schemes or are now doing so. This booklet provides an overview of the scheme s benefits and conditions. As with most tax legislation, the rules are detailed and it is important to obtain professional advice. Key features A qualifying company may grant qualifying options over its shares to an unlimited number of eligible employees subject to an overall limit of 3 million at any one time. Each eligible employee may hold options worth up to 250,000 (valued at the date of grant of the option) ( 120,000 prior to 16 June 2012). The option must be granted for genuine commercial reasons in order to recruit or retain employees in a company, and not to avoid tax. If a company is part of a group only the parent company may grant EMI options. Tax relief for employer company Where a company grants an EMI option then, in most circumstances, on the exercise of that option by the employee, the company will be entitled to a corporation tax deduction equal to the market value of the option shares exercised, less any payment made by the employee to the company. Tax relief for employee When the option is granted, no Income Tax, PAYE or NIC liability arises, even if the option is granted at a discount to the current market value. There will be no Income Tax, PAYE or NIC liability when the option is exercised, unless the option was originally granted at a discount. In such cases there will be an Income Tax and possible NIC liability based on the initial discount. The option holder will be liable to Capital Gains Tax on disposal of the shares. Unless the option holder qualifies for Entrepreneurs Relief (generally by already owning 5% or more of the company s shares and voting rights for the last 12 months prior to disposal) the gain will be subject to Capital Gains Tax at 18%/28% dependent upon the total level of income and gains. If Entrepreneurs Relief is available the gain will be subject to Capital Gains Tax at 10% if it falls within the first 10m of such gain. For options exercised on or after 6 April 2012, it is intended that the requirement to hold 5% or more of the company s shares and voting rights will be waived. This applies only to shares obtained via EMI options exercised post 6 April 2012; the 5% requirement remains for any other shares held by the individual. Qualifying company The gross assets of the company must not exceed 30 million on the date the option is granted. If it is part of a group the entire group assets are taken into account. The company (or group as appropriate) must have less than 250 employees when the option is granted. The company may be quoted or unquoted, but it must not be under the control of another company. It must be a trading company or the holding company of a qualifying trading group. Most trades qualify, but leasing, financial activities and property development are excluded, unless they are incidental to the company s main areas of activity. Royalties and licence fees qualify if they are mainly due to intellectual property created by the company. The company granting the option or, if it is a parent company, any other member of the group, must have a permanent establishment in the UK. 2 Enterprise Management Incentive 3

3 Eligible employees The option holder must be employed by the company or a qualifying subsidiary, and cannot control more than 30% of its ordinary share capital. Shares under option (other than EMI options) count towards this limit. Individuals must be employed by the company or group for at least 25 hours per week or, if less, 75 per cent of their working time. An employee can hold EMI options alongside HM Revenue & Customs-approved SAYE options but only alongside a Company Share Option Plan (CSOP) option in certain circumstances (see Disqualification from EMI regime below). Options qualifying for EMI The option must be capable of exercise within 10 years of grant and, in fact, be exercised within 10 years of grant. Options can be issued at a premium, market value, discounted or nil cost. However, on exercise, discounted or nil cost options will be subject to Income Tax and, possibly, NIC on the difference between the exercise price and market value at grant. Options must be granted over fully paid-up ordinary shares not redeemable shares. It is possible to impose conditions and limits on the shares (they can be nonvoting and/or conditional shares, for example) but any conditions must not be taken into account when valuing them. EMI relief is available on shares worth up to 250,000 (per individual) at the date of grant. Additional optioned shares will not render the shares under the limit ineligible, but will not themselves benefit from the EMI tax reliefs. Employees who have been granted the maximum 250,000 of EMI options, cannot receive further EMI options for three years after the last grant, even if options have subsequently been exercised to bring them below that limit. Disqualification from an EMI regime A variety of events would make the option non qualifying. These include: The Company ceases to carry on a qualifying trade. The Company grants an employee an approved Company Share Option Plan (CSOP) resulting in that individual holding EMI and CSOP options valued in excess of 250,000. The employee ceases to be employed by the company or to contribute the required amount of time to the company. Any alteration is made to the terms of the option which is not made for commercial reasons or the purpose of which is to increase the market value of the optioned shares and which is not made for commercial reasons. Any alteration in the share capital of the company which affects the value of the optioned shares and which is not made for commercial reasons. The conversion of any of the option shares into shares of a different class, except in certain limited circumstances. The Company becomes a subsidiary of another company or comes under its control. Administration Each grant must take the form of a written agreement between the employee and the company granting the option. The company must notify HMRC within 92 days after the grant is made. It is not necessary to obtain prior approval, but the Revenue have up to 12 months to ensure that the grant satisfies the rules. Any share valuation must be agreed with HMRC s Share Valuation Office. Within three months of the end of each tax year the company must make an Annual Return to HMRC. 4 Enterprise Management Incentive 5

4 Frequently asked questions Employers Do I need to agree a value of the Company Shares with HMRC? If you are a quoted company, HMRC will accept the mid-market price of the shares on the date of grant. If you are an unquoted company the share valuation must be agreed with HMRC. Do I need a new valuation each time I wish to grant options? A value agreed with HMRC is valid for 60 days. After that period a new application must be made although this does not necessarily mean a different value will need to be agreed. When else might I need a valuation? If a disqualifying event occurs, it will be necessary to agree a valuation at that date so that the gain up to that date can be determined. Employees Do I need to work for the company issuing the shares? No. If the company issuing the shares is a parent company of a group, you can work in any group company. Can I exercise my options whenever I like? This will depend on the Option Agreement. Conditions can be included such as a certain length of service being attained and profit targets reached. What happens if the company is taken over? You will normally be able to exercise your options at that time, if you wish. Alternatively, you may be able to exchange your options for new EMI options in the acquiring company. Can an investment company issue EMI shares? No. The company must be a trading company or the parent of a trading group. What trades are excluded? A variety of trades are disallowed, most commonly: Dealing in land, commodities, shares or securities Banking, insurance, debt factoring and hire purchase Leasing or receiving royalties (subject to certain exceptions) Provision of legal or accounting services Property development Are all types of shares eligible? No. The shares must be fully paid up and must not be redeemable. Do the shares need to be newly issued shares? No, shares held by an Employee Benefit Trust (EBT) or an existing shareholder can be acquired under an EMI option. Must it be the company that grants the option? No, an existing shareholder or EBT can grant the option. 6 Enterprise Management Incentive 7

5 HW Fisher & Company Business advisers - A medium-sized firm of chartered accountants based in London and Watford. Related companies and specialist divisions: Fisher Corporate Plc Corporate finance and business strategy FisherE@se Limited Online accounting and back-office services Fisher Forensic Litigation support, forensic accounting, licensing and royalty auditing Kingfisher Collections Royalty administration and collections services for IP owners Fisher Partners Business recovery, reconstruction and insolvency services Fisher Property Services Limited Property investment, management and finance Jade Securities Limited Business divestments, mergers, management buy-outs and acquisitions Stackhouse Fisher Limited Specialist insurance services Eos Wealth Management Ltd Intelligent wealth management and financial services VAT Assist Limited UK VAT representative London office Acre House William Road London NW1 3ER United Kingdom T +44 (0) F +44 (0) E advice@hwfisher.co.uk Watford office Acre House 3-5 Hyde Road Watford WD17 4WP United Kingdom T +44 (0) F +44 (0) HW Fisher & Company and HW Fisher & Company Limited are registered to carry out audit work in the UK and in Ireland. A list of the names of the partners of HW Fisher & Company is open to inspection at our offices. Fisher Forensic, Fisher Okkersen, Fisher Partners and Kingfisher Collections are trading names of specialist divisions of HW Fisher & Company, Chartered Accountants. HW Fisher & Company Limited, Fisher Corporate Plc, Fishere@se Limited, Fisher Property Services Limited, Jade Securities Limited, Fisher Forensic Limited, VAT Assist Limited, Eos Wealth Management Limited and Stackhouse Fisher Limited, are related companies of HW Fisher & Company, Chartered Accountants. HW Fisher & Company, HW Fisher & Company Limited and Jade Securities Limited are not authorised under the Financial Services and Markets Act 2000 but are regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. They can provide these investment services only if they are an incidental part of the professional services they have been engaged to provide. Fisher Corporate Plc is authorised and regulated by the Financial Services Authority under reference Eos Wealth Management Ltd is authorised and regulated by the Financial Services Authority under reference Stackhouse Fisher Limited is an Appointed Representative of Stackhouse Poland Limited who are authorised and regulated by the Financial Services Authority under reference Insight is produced with the intention of providing general information. Examples used are for guidance only and not a substitute for personalised professional advice. Views expressed are those of the authors and do not necessarily represent the views of HW Fisher & Company. All liability is excluded for loss or damages that may arise as a result of any person acting or refraining to act in reliance upon any material and information appearing in this newsletter. HW Fisher & Company is a member of the Leading Edge Alliance, an alliance of major independently owned accounting and consulting firms that share an entrepreneurial spirit and a drive to be the premier providers of professional services in their chosen markets. If you would like to subscribe / unsubscribe to our publications, please info@hwfisher.co.uk This briefing is printed on Essential Velvet recycled paper. HW Fisher & Company Print date: Jan All rights reserved.