There are broadly two types of schemes relevant to UK start-ups; the EMI scheme and an unapproved scheme. There are also other schemes available such as CSOP but they are generally not very useful to start-ups due to their complexity and the fact they don’t offer the same tax benefits.
Both the EMI and unapproved schemes hold large incentives to your staff; rewarding them for their work by giving them the right to buy shares in your company. This ‘option’ is set at a pre-agreed price known as the ‘exercise price’. When an employee exercises these options in the future, they are able to buy them at the exercise price and then sell them at market price. Hopefully benefitting from this sale from the price difference.
The EMI scheme is most popular as that is where all the tax benefits lie for both the company and employee. There are certain eligibility criteria that needs to be met based on your company’s industry, legal rules around the shares themselves and the employee who will be the recipient.
Crucially, employees don’t attract tax until the options are exercised and the company benefits from a corporation tax deduction equal to the difference between the market value of the shares at exercise and what the employee pays for them.
The benefits to your business go beyond tax relief though. They can help you attract and retain the best talent across job markets and provide rewards to employees who have helped grow the company when it reaches certain milestones.
An unapproved scheme differs to EMI in that it requires no pre-approval from HMRC. It, therefore, does not receive the same tax benefits listed for the employee or company listed above. However it does not need to fit the same eligibility criteria of the EMI scheme. Although the tax benefits are not available, it is still a useful scheme to motivate employees and attract talent.
At Azure, we have partnered with a legal team to help you get the setup and contracts of the scheme issued. We then perform annual valuations to agree on share prices and can update employees through our portal around the ongoing performance of the company. We also take care of all the HMRC and Companies House filings.
Contact us today to see how we can help you.