Is EMI the biggest untapped business resource in the UK?
Posted: Thu 4th Mar 2021
Your to-do list probably includes researching external investment or checking out the capabilities of business consultants that can help you to drive company success.
One thing that should definitely be on that list but probably isn't, is setting up an Enterprise Management Incentive (EMI) scheme - a brilliant share scheme for your employees.
Created by the government in the early 2000s, this highly flexible and tax-efficient scheme is a transformative and powerful tool for any business. However, as things stand, EMI has only been adopted by a tiny percentage of the UK's eligible SMEs.
Of the estimated six million SMEs across the British Isles, only 12,000 currently operate an EMI scheme. More positively, that figure has doubled since the mid-noughties, with recent research by 3Gem indicating that numbers will explode this year.
So why should businesses have EMI on their radars, and what exactly is it?
What is an EMI scheme?
In a nutshell, an EMI is a share/options scheme for employees of UK-based businesses.
These tax-advantageous schemes are mainly used by small to mid-sized UK businesses looking to share their successes with their team as their company grows.
An EMI allows you to not only reward your employees with options that have massive tax advantages, but to offset both the cost of the scheme and the tax benefits achieved by your employees against your company's corporate tax liability.
You also have the flexibility to set conditions for recipients, including performance or length-of-service milestones, making EMI an incredibly safe way to protect your equity.
What's the big deal?
EMI options schemes are exciting for businesses because studies have shown that they bring enormous benefits, above and beyond their tax efficiencies.
Employee share schemes help to:
Attract and retain the best people over longer periods of time
Align interests by giving team members a sense of company ownership
Reward those who help you grow the business by enabling them to share in its success
Create a more committed and engaged workforce. Businesses with share schemes tend to outperform businesses that don't share ownership with employees
In other words, they create instant cultures of success, especially if managed and communicated effectively.
Cass Business School and Manchester University's recent study into shared equity found that businesses that operated share schemes saw greater sales and greater performance over a longer time horizon and greater resilience during downturns.
#Winning
In other words, by sharing equity, even in relatively small amounts, you'll be creating a company that's primed to win.
There are a number of different share schemes to choose from, but EMI is by far the most popular (chosen by 85% of companies that operate a scheme) due to its requirements and tax advantages.
If you are eligible, EMI is the gold standard from every perspective.
What's the criteria?
In order to benefit from EMI, you have to qualify for it.
If your company has fewer than 249 employees, has assets worth less than £30 million and isn't majority owned by another company, you'll likely qualify - but here's a full list of requirements.
Don't worry if you don't qualify. There are other schemes available. For a digest of different available types, check out this guide.
Is EMI expensive and time consuming to set up?
In times gone by, setting up a share scheme was a bit of a trial.
Companies had to engage solicitors and accountants and go through an arduous process of establishing eligibility, obtaining company valuations, submitting them to HMRC, authorising share pools, getting approval from the board etc. It was bureaucratic hell.
It's little wonder that so many businesses gave that a swerve.
However, these days, like much else, the digital revolution has made this so easy that you could practically set up your EMI scheme with your eyes shut.
Share scheme platforms and apps take all of the hard work and hassle out of the process.
By going digital, you'll also ensure that your business stays compliant through to exit (it is believed that about half of schemes out there are non-compliant) and you'll save a tonne of cash, too.
The traditional methods of setting schemes up were labour-heavy for accountants and solicitors alike, but apps and platforms cut the middle men out, saving you thousands of pounds in hourly rates.
Game-changing
As mentioned above, 2021 is predicted to be the year that EMI goes mainstream as companies use it to forge strong, aligned company cultures in the wake of the pandemic.
If you are serious about accelerating your business growth, recognising and valuing those employees who support you in that endeavour, then choosing EMI is among the most impactful decisions you can make to help you reach your goals.
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