Company share schemes are popular tools used by employers to incentivise employees, and in turn, retain and recruit key staff members. They provide a foundation from which to foster a collaborative business culture. If a company offers an HMRC-approved share scheme to its employees, both parties can benefit from significant tax advantages, which is another great reason for companies consider operating these schemes.
Enterprise Management Incentives Schemes (‘EMI Schemes’) are arguably the most popular type of government-backed share option scheme available in the UK. EMI Schemes are targeted at small independent trading companies operating with under 250 employees, whose gross assets do not exceed £30m. EMI Schemes are cost-effective, flexible and confer one of the most tax-advantageous options out of all of the company share schemes available. Effectively, companies are able to grant qualifying employees share options up to a value of £250,000 over a three year period. Companies that engage in certain trading activities, however, are excluded from these schemes, such as those involved in the banking, farming, property development, legal services and ship building industries.
Conversely, until recently Company Share Option Plans (‘CSOPs’) gave qualifying employees the option to buy up to £30,000 worth of shares at a fixed price. Effective from 6 April 2023, the individual limit for CSOP options doubled to £60,000. In addition, companies that have more than one class of shares will soon be permitted to grant CSOP options.
These changes are substantial, and particularly helpful to SMEs that often have multiple classes of shares that are tailored to groups of shareholders. The same is true for companies that had previously considered introducing EMI Schemes but failed to satisfy the applicable conditions. The recent changes will also help widen access to companies who have outgrown EMI Schemes but are currently prohibited from operating CSOPs, including venture-capital based companies and other companies with multiple classes of shares. Whilst the new increased individual limit of £60,000 attached to CSOPs remains significantly lower than the EMI limit of £250,000, progress has been made in the right direction. Therefore, to get ahead of the game, companies should start getting familiar with the new changes and ensure CSOPs are firmly on their radar.
If you are interested in setting up an EMI Scheme or CSOP as an alternative way of rewarding or incentivising your employees, or have any questions regarding company share option schemes, please do not hesitate to email or call our Corporate team on 0113 207 0000.
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