Enterprise Management Incentives (EMIs) Overview

A set of flashcards that covers key concepts related to Enterprise Management Incentives (EMIs), including their requirements, tax implications, and regulations.

What are Enterprise Management Incentives (EMIs)?

Tax-advantaged share options that enable employers to reward selected employees.

What is the EMI Code?

The rules dealing with tax charges exemptions on EMI shares as outlined in ITEPA 2003, ss.527-541 and Sch 5.

What is a key requirement for a company to establish an EMI?

The company must carry on a qualifying trade that is not an excluded activity.

What type of companies are eligible for EMI schemes?

Small or medium-sized entrepreneurial companies located in the UK.

What is the maximum gross assets limit for an EMI company?

The gross assets must not exceed £30 million.

How many full-time equivalent employees must an EMI company have at most?

Fewer than 250 full-time equivalent employees.

What is the independence requirement for an EMI company?

It must not be a 51% subsidiary or controlled by another company.

What is a disqualifying event in the context of EMI?

An event that causes an EMI option to lose its qualifying status, impacting tax treatment.

What is the exercise price in EMI options?

The amount that the employee pays to acquire shares, must be stated in the option agreement.

What happens if an EMI option is exercised after ten years?

It is treated as a non-tax-advantaged option, subjecting any difference between market value and exercise price to income tax.

What are the capital gains tax implications for EMI shares?

Tax is payable on any gain when shares are disposed of, calculated using the base cost including tax charged on exercise.

What is an advance assurance in the context of EMI?

A request to HMRC to confirm that a company meets the qualifying conditions for an EMI.

When must an EMI scheme be registered with HMRC?

By 6 July following the end of the tax year in which the first options are granted.

What is the maximum value of shares over which an individual can hold EMI options?

The maximum value cannot exceed £250,000.

How are EMI options treated if a company is taken over?

EMI options can be replaced with options in the acquiring company without tax consequences under certain conditions.

What is the significance of a £3 million limit in EMI options?

The total value of shares over which EMI options are held cannot exceed £3 million.

What does the term 'restricted securities' mean in the context of EMI?

Shares that have limitations attached which can impact tax treatment.

What tax charges arise if the exercise price of an EMI option is lower than market value at grant?

Income tax arises based on the discount at grant when the option is exercised.

What must happen if a disqualifying event occurs?

If the option is exercised within 90 days, tax advantages are preserved; otherwise, there may be a tax charge.

What penalties can HMRC impose for inaccuracies in EMI returns?

HMRC can impose penalties for inaccuracies, late submissions, and failure to report grants.