Enterprise Management Incentives (EMI)
The limit set for the share option scheme focused on small and medium sized businesses, Enterprise Management Incentives (EMI), is set to increase. Currently, the value of qualifying options which can be issued to any one employee is £120,000. This limit will be increased to £250,000. The restriction, which stops further options from being granted until a period of three years has passed following the limit being reached, is to remain. The overall company limit of options of £3 million is also set to remain.
The Government also proposes to reform EMI in Finance Act 2013 allowing gains arising from 6 April 2012 on the sale of shares acquired through an EMI scheme to be eligible for Entrepreneurs' Relief. This will reduce the effective rate of CGT suffered on any gains to 10%. The Government also proposes to consult on extending the EMI option scheme to academics, who do not always meet the qualifying criteria.
Who will be affected?
Senior employees of small and medium sized businesses which issue EMI share options.
The Government needs state aid approval to implement this measure, but plans to push through the changes by Statutory Instrument as soon as possible given this constraint.
This is a welcome increase to the limit, which will assist small and medium sized companies to retain and incentivise key employees. We welcome the extension of Entrepreneurs' Relief to shares acquired through an EMI scheme. The impact of commercial constraints on the practical effect of this measure remains to be seen.