This post is part of our Entrepreneurial team’s regular series of blogs.
One of the somewhat unexpected outcomes of the Budget on 3 March was the announcement of a consultation into the Enterprise Management Incentive (“EMI”) scheme. The EMI scheme, as noted in previous blogs, is a key tool for high-growth companies in recruiting and retaining employees.
Although there were many calls from industry bodies and professionals for a consultation on the scope of the Enterprise Investment Scheme (“EIS”), the Chancellor chose instead to focus on EMI, seeking evidence on whether the scheme should be expanded and how it could be expanded to best support high-growth companies.
The consultation is open and is seeking evidence on the following points:
- Whether the scheme currently meets it policy objective of helping companies to recruit and retain employees.
- Whether the scheme is meeting its objective of helping SMEs grow and develop.
- Evidence on which aspect of the scheme is most valuable in helping SMEs with their recruitment and retention objectives.
The ways in which the scheme could be expanded could result in an extension of the qualifying trade criteria regarding the type of trade undertaken by a company, or perhaps the limits relating to the value of options a company can issue or an individual can hold, or less likely, an extension of the tax advantages, for example in relation to Business Asset Disposal Relief. Currently the limit of Business Asset Disposal Relief is £1 million, in line with the reduction from £10 million to £1 million for all eligible capital gains. It appears from the consultation document that one of the key areas for potential expansion would be regarding the limits imposed.
Further, the document asks whether the other tax-advantaged share schemes offer sufficient support to high-growth companies where they no longer qualify for EMI. We have recently commented on the use of CSOP as an effective tool, however, whether this is of much use once the EMI limits have been breached is questionable. The flexibility of EMI certainly makes it the most advantageous scheme and many companies will go on to use a form of growth share scheme once the EMI limits are reached, in order to ensure the highest growth opportunity for employees.
We will, of course, be responding to the consultation and encourage businesses who have used the scheme to either respond directly with evidence or get in touch with us if they wish to feed into our response.
If you have any questions on the consultation or how to provide evidence, please contact me as I will be collating our response.