Chapter 18 - Enterprise Management Incentives

Question 1

Introduction

Answer 1

Employer can award selected employees with tax favoured share options. They are available to small trading companies.

Question 2

Operation of Scheme

Answer 2

Registered with HMRC. Company grants options to employees to buy shares at a fixed price within a specified period. Must be exercisable within 10 years of grant. Within 10 years, the grant is exercised and the employee buys shares in the co. Only tax usually charged will be CGT on sale of shares

Question 3

Qualifying Conditions

Answer 3

EMI company must be trading with a PE in the UK and carry on a qualifying trade.
The gross assets of the co cannot exceed £30 million and the total value of shares with EMI options held on them cannot exceed £3 million.
Company can’t have more than 250 full time staff.
Company mustn’t be controlled by another co.
Employees with material interest cannot participate
Max value an employee can hold is £250,000

Question 4

Tax Implications

Answer 4

Never a tax charge on grant.
If exercised more than 10 years from grant, it’s treated as non-tax advantaged - the difference between MV at exercise and cost of shares is charged to IT.
Within 10 years, the exercise gets favourable tax treatment, there will be no IT charge if there was no discount.

Question 5

Income Tax at Exercise

Answer 5

If discount given, the lower of MV at grant or exercise less option price is charged to IT as employment income.
CGT on the sale of shares will always occur

Question 6

CGT

Answer 6

Base cost will be the amount paid for shares plus any amount charged to IT at exercise. Base cost is subtracted from the sale proceeds.

Question 7

Readily Convertible

Answer 7

PAYE and Class 1 Primary and Secondary apply where the shares are readily convertible assets.