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EMI SCHEME

HMRC Updates Guidance on EMI Scheme: A Closer Look

EMI Scheme -  the most tax-efficient way to incentivise and reward key employees by granting them the opportunity to benefit from the company's growth and success. 

 

The UK's HM Revenue and Customs (HMRC) recently released updated guidance on the Enterprise Management Incentive (EMI) scheme, aiming to provide clarity and guidance for companies and employees alike.

Understanding the EMI Scheme:

The EMI scheme is a UK tax-advantaged share option scheme that allows eligible companies to grant options to their employees to acquire shares in the company. The EMI scheme is mainly used by small to mid-sized UK businesses with substantial growth potential who want to retain and incentivise key employees. 

For companies, implementing the EMI scheme can offer several benefits. It provides a tax-efficient way to attract, retain, and motivate talented employees. By aligning employees' interests with the long-term success of the business, the scheme encourages commitment and loyalty. Additionally, it can enhance company reputation, competitiveness, and overall employee morale. 

Understanding the HMRC Updates: 

Keeping up with changes in HMRC guidelines is crucial to comply with tax regulations and avoid potential issues. The updated guidance addresses various aspects of the EMI scheme, including eligibility criteria and valuation requirements. These updates provide clarity and useful insights for companies wanting to implement or continue using the scheme. 

EMI guidance update:

Maximum number of employees test

The number of employees must be less than 250 on the date that the EMI options are granted, so effectively a company may have more than 250 employees at one point in the year and still be eligible. This is helpful as the number of employees may vary over the course of the year and so it can be difficult to determine the actual number of employees.

 

Gross assets test

If you work for a company with assets of £30 million or less, it may be able to offer Enterprise Management Incentives (EMIs).HMRC also stated that for the purpose of the gross assets test where a company’s assets must not exceed £30m, advance payments for shares should be ignored, whereas the unpaid portion of a partly paid share should be included. However, the previous guidance referred incorrectly to the gross assets test being completed before the issue of shares, rather than at the time the EMI options were granted to the employees. The new guidance corrects this error.

Excluded activities

The guidance has provided further information as to what amounts to wholesale and retail distribution. Dealing in goods, otherwise than in the course of an ordinary trade of wholesale or retail distribution is an excluded trading activity and would therefore prevent a company from being eligible to operate EMI. The guidance specifically states that where a trade exists ‘to a substantial extent’ of dealing in goods which are collected or used as an investment, as well as holding them for longer than expected if they were going to be distributed, then it cannot be an ordinary trade of wholesale or retail distribution. The new guidance suggests that consideration will be given to the length of time and the type of goods acquired in deciding whether the action constitutes an excluded activity.

What the updated guidance means

At any one point, a company can employ more than 250 employees and only meet the threshold when applying for the EMI. When calculating the gross assets test where a company’s assets must not exceed £30m, advance payments for shares should be excluded, whereas the unpaid portion of a partly paid share should be included. In terms of what amounts to wholesale and retail distribution, consideration will be given to the length of time and the type of goods acquired in deciding whether the action constitutes an excluded activity. It is important to understand the updated guidance as this affects how a company can comply and plan to qualify for the EMI scheme. 

How AVUKE can assist:

We at AVUKE specialise in staying up-to-date with regulatory changes to ensure our clients remain compliant in all areas. 

Expertise in HMRC Regulations: AVUKE have a deep understanding of the EMI scheme and we provide guidance tailored to individual company needs, ensuring adherence to the latest regulations. 

Assistance in Implementation and Documentation: Implementing the EMI scheme involves various legal and compliance considerations. AVUKE assists in designing and implementing the scheme, drafting employee agreements, and providing guidance on tax valuation methods. Furthermore, we assist in drafting compliant documentation required by HMRC. 

Audit and Risk Management: AVUKE offers comprehensive audit services to review existing EMI schemes, identify potential risks or non-compliance issues, and provide recommendations for corrective actions. Regular audits help companies mitigate risks and ensure ongoing adherence to HMRC regulations. 

Training and Support: AVUKE provides training sessions and ongoing support to ensure companies have the necessary knowledge to operate the EMI scheme effectively. Our expertise equips management and HR teams to navigate potential challenges, handle complex queries, and address any compliance-related issues that may arise. 

Conclusion: 

The updated guidance on the EMI scheme by HMRC emphasises the importance of compliance and staying up-to-date with the latest regulations.  AVUKE provides valuable support for companies looking to implement or continue using the EMI scheme. Our expertise helps companies navigate the complexities of the scheme, remain compliant, and ultimately reward

 

 

References:

https://www.lexology.com/library/detail.aspx?g=518ada91-2298-415d-a225-96bbb515c5a1

https://www.gov.uk/hmrc-internal-manuals/employee-tax-advantaged-share-scheme-user-manual/updates

https://www.lexology.com/library/detail.aspx?g=518ada91-2298-415d-a225-96bbb515c5a1

https://www.gov.uk/hmrc-internal-manuals/employee-tax-advantaged-share-scheme-user-manual/updates

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