Changes to EMI rules announced

Small businesses need to be aware of changes to employee share scheme rules which may help them retain key staff.

The changes to the Enterprise Management Incentive (EMI) share option scheme are outlined in the newly published draft Finance Bill.  Under these changes, staff may qualify for Capital Gains Tax at a lower rate of 10%, rather than 28%, on the sale of their shares after one year from the date on which the options were granted.

The move is designed to remove potential cash flow problems and valuation risk previously associated with capital gains Entrepreneurs’ Relief for EMI option shares.  Staff will be able to exercise their share options and then sell their shares on the same day, rather than having to buy out the options at least a year before they cash them in if they want to claim the reduced capital gains tax rate.

The 5% ownership threshold to qualify for the capital gains tax relief will also be removed, as the Government looks to encourage wider employee ownership and to help entrepreneurial businesses.

The new arrangement will take effect for shares sold on or after 6 April 2013, if the shares were acquired by exercise of an EMI option after 6 April 2012.

The Government wants more people to have the opportunity to have a stake in their employer company and these changes are designed to make doing so more attractive.  In the long term, this could help smaller business retain key members of staff.

Of course, an EMI scheme is not right for every business.  Employers considering offering employee share incentives should seek professional advice first, to ensure they adopt the most appropriate plan for their requirements.

For further information please contact Stuart Hinnigan at the office.