Share Ownership for Employees Kindly provided by The A9 Partnership Ltd
The encouragement of share ownership
for employees is high on the agenda of the current Government and a number of changes to current riles have been or will be made. Probably the most important development for small and medium sized enterprises is a change in the Enterprise Management Incentives (EMI) scheme.
EMI allows selected employees (often key to the employer) to be given the opportunity to acquire shares in their employer through the issue of options.
Of shares or ‘unapproved’ options are given to an employee, a tax bill will arise on the employee often before the shares can be sold by the employee.
EMI allows options to be granted to employees which allow the shares to be received without any tax bill arising until the shares are sold.
How does it work? Selected employees are granted options over shares of the company. Under the option the employee is given the right but not the obligation to buy shares at a later date. Typically the purchase price of the shares will be set at the market value of a minority shareholding in the company at the date the option is granted.
Following the acquisition of the shares, when the option is exercised, an employee may immediately dispose of, or may retain the shares for a period before selling them. At such time there will be a chargeable gain on the difference between the sales proceeds and the amount paid by the employee for the shares.
Chargeable gains, if they exceed the annual exemption are normally chargeable at 18% or 28%.
However, Entrepreneurs’ Relief (ER) when 18
available can reduce the CGT liability to 10% and this is where the recent change to the law has increased the attractiveness of EMI. ER normally requires the shareholder to: •
•
own 5% of the ordinary voting shares of the company.
The law has been amended to extend the relief to EMI shares by allowing the 12 month minimum holding requirement to commence on the date the option was granted and removing the 5% minimum shareholding requirement.
So EMI provides an opportunity to participate in the future capital growth of the company while deferring any cash costs of buying shares until a later date and with a 10% tax bill on the net gain which only arises when the shares are sold.
What are the benefits to employers?
1. Employers have a potential stake in their company and therefore retention and motivation of these employees will be enhanced.
2. Options will not directly cost the
employer any money in comparison to paying extra salary.
3. There will normally be no National Insurance contribution (NIC) charges for the employer when the options are granted or exercised or when the employee sells the shares. NIC liabilities may arise in some circumstances on other options or share awards.
4. A corporation tax deduction for the employer company broadly equal to employees’ gains will be given when an employee exercises an option.
To advertise in thewire t. 07720 429 613 e.
the.wire@btinternet.com
have held shares in the qualifying trading company for at least 12 months prior to sale and
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100