Use of Enterprise Management Incentive scheme hits all-time high

Use of the Enterprise Management Incentive (EMI) scheme hit an all-time high last year*, with key employees making a record £760m in gains from selling shares in the businesses they work for, says UHY Hacker Young, the national accountancy firm. That is a 27% increase from the £600m they made in selling shares in 2017/18.

34,000 employees were granted new share options under the EMI scheme last year, also an all-time high. EMI share options were exercised by 8,000 employees of 1,550 businesses over the same period, the highest figures since 2007/8.

UHY Hacker Young explains that the EMI scheme is used by businesses to retain and motivate their key employees, as it allows them to directly profit from the profitable growth of the business. The firm says that record use of the scheme shows how successful it has been in helping businesses align their interests with those of employees.

The scheme has often been used by fast-growing businesses in ‘knowledge economy’ sectors like technology and fintech, where retaining talent in the long term can be challenging.

Michael Fitch, partner at UHY Hacker Young, comments: “The EMI scheme has proven to be a consistent winner for businesses and employees, which is why its use has risen so dramatically.”

“The recent fall in the stock market and in some company valuations might cause a few wobbles for those seeking to exercise options. Our view is all companies should at least consider introducing this scheme and with low company valuations it is a good time to grant options. From a tax point of view its very generous.”

“Using the EMI scheme means the most valuable individuals are more likely to stay and grow a business.”

Employees granted share options under the EMI scheme do not have to pay income tax or national insurance on the value of share options when they are granted and often only pay 10% capital gains tax when selling their shares**.

* Year end March 31 2019. Source: HMRC
** Due to claiming Entrepreneurs’ Relief