EMI Schemes and how the 2023 Spring Budget can help your Small – Medium Business

The Corporate team look at the benefits of Enterprise Management Incentive Schemes and how the 2023 Spring Budget aims to streamline them to help small and medium sized businesses.

The 2023 Spring Budget introduced several measures to support small and medium-sized businesses/enterprises (SMEs), one of which was to simplify the qualifying conditions for Enterprise Management Incentive schemes (EMIs) from as soon as 6 April 2023.

What is an EMI?

An EMI is a scheme whereby a company grants share options to a number of its employees. A share option is essentially the right to buy a set number of the company’s shares in the future at a price fixed at the date the option is granted.

What are the benefits of an EMI?

For an employee, if they’ve been granted options and their company’s share value goes up, they can exercise their option and sell their shares, making significant profit without paying income tax or national insurance on this.

As such, for an employer, such a beneficial scheme is a useful tool to attract and reward (and thereby retain) selected members of their workforce.

Why has the 2023 Spring Budget 2023 introduced changes?

In March 2021, the government put out a Call for Evidence regarding EMIs. Their findings highlighted that certain elements of the schemes were unnecessarily restrictive for SMEs and undermined the purpose of the policy i.e. to help SMEs incentivise and retain staff.

Accordingly, the 2023 Spring Budget changes aim to rectify this.

What are the changes?

Effective from 6 April 2023

1. Companies no longer need to set out the details of any restrictions on option shares in a share option agreement.

Requiring such detail was found to cause problems during due diligence exercises should the company be sold.

2. Companies no longer need to declare that an employee signed a working time declaration when they were issued an EMI option.

This step was deemed to be unnecessary; employees will still need to meet a working time requirement, but this is included as a provision within the EMI option contract.

Effective from 6 April 2024

3. The deadline to notify HMRC about an EMI option will be extended to 92 days following the date it is granted.

(The longer-term plan is to change this deadline into one annual notification per company of any new EMI options granted across the year, which will further simplify the process.)

If you would like further information and advice on EMIs from checking whether your company qualifies for one all the way to help setting one up, please do not hesitate to get in touch on 0161 926 9969 or corporate@mlplaw.co.uk.