Surge in value of SME employee share schemes as staff take advantage of improved tax breaks
The value of share options granted to employees through the Enterprise Management Incentive (EMI) share option scheme for SMEs has jumped by a quarter in the last year to £250m up from £200m, as employees take advantage of the generous new tax breaks it now offers, says Pinsent Masons, the international law firm.
According to Pinsent Masons, the average value of share options granted per employee via EMIs has also hit the highest point since the start of the scheme, jumping by 25% to £13,900 from £11,100 last year.
From the 6th April 2012, shares acquired through an EMI scheme have qualified for Entrepreneurs’ Relief on Capital Gains Tax, even if the employee does not meet the usual requirement of holding a minimum 5% stake in the company. This means that employees with share options in their company will pay Capital Gains Tax at just 10% when they sell their shares, instead of at the standard rates of 18% or 28%, provided the shares are sold at least a year after the option is granted.
Pinsent Masons explains that the EMI share option scheme is designed to help smaller companies to compete with larger rivals in recruiting and retaining the best staff, by giving them a tax-efficient way to reward and incentivise them. Allowing employees to reduce the amount of Capital Gains Tax they pay on their shares has led to surge of interest in the scheme.
Matthew Findley, partner and head of share plans and incentives at Pinsent Masons, commented: “EMI is an extremely tax efficient way for employees to buy shares in the company they work for. This can be a valuable incentive when recruiting new staff and can also be used as a means of motivating existing employees by encouraging them to stay with the company and giving them more of a stake in its performance.
“The Government is very keen to promote higher levels of employee share ownership because of the positive impact it can have on company performance and how it can help strengthen small businesses in particular.
“For businesses that qualify for the EMI scheme it really does make sense to use it. We expect to see a greater appetite for the EMI share scheme amongst both employers and employees as more and more people become aware of its benefits.
Pinsent Masons says that in addition to attracting a lower rate of Capital Gains Tax, shares acquired through the EMI scheme are also not subject to Income Tax or National Insurance provided the price paid for them is not less than the market value of the shares at the time that the option was granted.
In order to qualify for the EMI scheme, a company must have gross assets below £30m, must be independent, and have fewer than 250 full-time employees.
