First to understand, are the general requirements of an EMI scheme.  

This covers such issues as what the purpose of the scheme has to be (to retain or recruit employees), how many shares you can grant an employee (max value of £250,000, based on UMV), and the most that a company can grant (£3m unexercised options at any one time, based on UMV).  To the extent that amounts are granted over these limits, then they will not be qualifying.  Further details can be found at:

https://www.gov.uk/hmrc-internal-manuals/employee-tax-advantaged-share-scheme-user-manual/etassum51000

The next step is to assess whether your company itself meets the criteria to qualify for EMI.

The key criteria are:

Independence: more than 50% of the ordinary share capital must not be owned or controlled by another company, nor arrangements be in place for that to happen.

Qualifying subsidiaries: if the company has any subsidiary companies they must also qualify.  And if it is a property managing subsidiary, it must be at least 90% owned and controlled by the company.

Gross assets: must not exceed £30m at time of EMI option being granted (if part of a Group, all assets of Group included).

Number of employees: must have fewer than 250 full time equivalent employees.

Trading activities: Must have a permanent establishment in the UK, and must not have a substantial part of its trading activities in any of the following (there is more detail for each on the HMRC website via the link below):

  • dealing in land, commodities or futures, or shares, securities or other financial instruments,
  • dealing in goods, otherwise than in the course of an ordinary trade of wholesale or retail distribution,
  • banking, insurance, money-lending, debt-factoring, hire purchase financing or other financial activities,
  • leasing (including letting ships on charter, or other assets on hire),
  • receiving royalties or other licence fees,
  • providing legal or accountancy services,
  • property development,
  • farming or market gardening,
  • holding, managing or occupying woodlands, any other forestry activities or timber production,
  • shipbuilding, coal and steel production,
  • operating or managing hotels or comparable establishments or managing property used as a hotel or comparable establishment,
  • operating or managing nursing homes or residential care homes, or managing property used as a nursing home or residential care home, and
  • providing services or facilities for another business (whose activities are excluded).

Further details can be found at:

https://www.gov.uk/hmrc-internal-manuals/employee-tax-advantaged-share-scheme-user-manual/etassum52000

If in doubt as to whether your company does meet these criteria, advance assurance can be sought from the Small Company Enterprise Centre (SCEC).  Local Compliance, Small Company Enterprise Centre Admin Team, SO777, Newcastle, NE98 1ZZ. Telephone: 0300 123 1083.

A first step is to give them a call to see if they think you are clearly eligible or non-eligible.  They may then ask you to follow it up formally.

The following information will then be needed:

  • Registered Office address, Company Registration Number, Corporation Tax 10 digit reference number,
  • a copy of the latest available accounts for the company and each of its subsidiaries with a permanent establishment in the UK,
  • an up-to-date copy of the Memorandum and Articles of Association of the company and details of any proposed changes, and
  • details of all trading or other activities carried on, or to be carried on, by the company and its subsidiaries.

Finally, you need to make sure the employees themselves qualify. 

The key criteria are:

Employment: they must be employees (or Directors) who work at least 25 hours each week, or 75% of their working time for the company.

Material Interest: they - or together with an associate - must not have (or have the rights to acquire) a beneficial or controlling interest (directly or indirectly) of more than 30% in the company.

Holding of equity stake: they must hold the equity (either as an option or once exercised into shares) for at least 24 months in total before the shares are sold.

https://www.gov.uk/hmrc-internal-manuals/employee-tax-advantaged-share-scheme-user-manual/etassum53000


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