EMI share schemes benefit from favourable tax treatment and can be a useful tax planning device where a company is being groomed for sale. It is also useful in start up situations where cash is limited but employees are willing to shoulder some of that additional corporate risk in exchange for a capital share in that business. Employees can receive options over shares worth up to £250,000 and, subject to conditions, no income tax or NIC liability arises on either the grant or exercise of the option, subject to an overall cap on the value of the share under option of £3m. The company may also benefit from a corporation tax deduction when the option is exercised.
In addition, on a sale of shares acquired under a qualifying option scheme an individual may benefit from Entrepreneurs Relief and so pay capital gain tax at 10%.
There are other types of share schemes available which fall into two main categories, HMRC approved schemes and unapproved schemes
Approved share option schemes have tax advantages attached but use of these is subject to stringent requirements. Unapproved share option schemes offer a much broader participation and greater flexibility; but tax advantages are minimal, however there can be crucial commercial advantages gained through their operation.
The trade off is always between cash outlay for remuneration, or other traditional staff costs and dilution of equity ownership for the existing shareholders. The varying types of option schemes available allow that trade off to be managed and controlled.
To discuss the share schemes that are available and which may suit your needs please contact David Gibbs
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