EMI call for evidence response summary

HM Treasury has published a summary of responses to its earlier call for evidence ‘Enterprise Management Incentives’. Feedback on the scheme was generally positive, but additional support for high-growth companies is proposed, along with administrative easements.

The original Call for evidence ran between March and May 2021, attracting 48 responses. Most respondents were legal, financial, and professional advisers, with an interest in the Enterprise Management Incentive (EMI) scheme from advising clients that use it.

Comments were invited on whether, and how, the EMI scheme should be expanded.

• Some respondents reported EMI options being offered to all staff, although in most cases they were offered to key or senior staff only.
• The most common reasons for using EMI were to recruit, retain and incentivise key staff.
• Where eligible, companies favoured EMI over the other tax-advantaged share schemes.
• Respondents unanimously agreed that EMI is meeting its objectives of helping Small to Medium-sized Enterprises (SMEs) to recruit employees.
  • Many stated that EMI allows companies to access talent that would otherwise not be achievable without offering the higher salaries that larger companies may be able to.
• The majority of respondents agreed that EMI met the policy objective of employee retention.
• Overall, responses indicated support for the view that EMI has a positive effect on the growth and development of SMEs.
• Differing views were given as to the most valuable aspects of the EMI scheme in helping SMEs with their recruitment and retention objectives.
  • The most common answer was the flexibility of the scheme, which allows tailoring to suit each company’s specific needs, requirements and objectives.
  • Other valued attributes included the advantageous tax treatment, high options limits, retention of key people, simplicity compared to other share schemes and affordability for both the employer and employee.
• A drawback of the scheme noted was the complexity of the rules and the administration involved in operating it, particularly the 92-day option grant notification requirement.
• There was some suggestion that high-growth companies, that are no longer eligible for EMI, find it difficult to recruit or retain employees.
  • The Company Share Option Plan (CSOP) was not seen as being as flexible as EMI, or as supportive to high-growth companies, due to multiple share class restrictions and ‘good leavers’ rules. In addition, the £30,000 options limit is not as generous.
  • This means there is a gap between EMI and CSOP which causes a cliff edge.
• Overall, it was felt that the current benefits offered by CSOP do not enable high-growth companies beyond the EMI limits to compete effectively with larger companies that can offer liquid equity.
• Most respondents considered a need for greater employee share scheme support for these larger high-growth companies, including expanding the EMI scheme or enhancing CSOP.
  • Suggestions for expanding EMI included:
    • • Increasing the limit on the number of employees.
      • Increasing the limit on gross assets.
      • Broadening the types of companies that are eligible.
      • Increasing the company level limit on unexercised options under issue.
  • Many respondents acknowledged that a competitive advantage for SMEs should be maintained.

Next steps

In the Spring Statement 2022, the government announced it had concluded that the current EMI scheme remains effective and appropriately targeted.

In September 2022, the Government announced an expansion of the CSOP scheme. From 6 April 2023 there will be:

• A relaxation of the rules which restrict the use of the scheme when the company has more than one class of ordinary shares (the ‘worth having’ restriction), to better align it with EMI.
• A doubling of the employee option limit from £30,000 to £60,000.

These measures are intended to help larger companies that no longer qualify for EMI.

To reduce the administrative burdens of EMI, it was Announced at Spring Budget 2023 that:

• The requirement for a signed working time declaration will be removed from 6 April 2023.
• The requirement to set out share restrictions in an option agreement will be removed from 6 April 2023.
• The time limit within which companies must submit an EMI notification will be extended from 6 April 2024.

Useful guides on this topic

EMI: Enterprise Management Incentive Scheme (subscriber guide)
What is the Enterprise Management Incentive (EMI) scheme? What's the difference between EMI and an unapproved share scheme?   

Shares, securities & options: Tax compliance
What are the filing requirements for share-based remuneration? What needs reporting by the 6 July deadline? What penalties are there for late filing?

Issuing new shares (planning and pitfalls)
A practical guide on how to issue new shares in a company together with a summary of some of the pitfalls if an issue fails to qualify for tax purposes.

External link

Enterprise Management Incentives: Call for Evidence: Summary of Responses