A motivated workforce is a productive workforce and one way to ensure this is to offer an employee share scheme.
There are a few different schemes to choose from out there, but an interesting one you may want to consider for your business is an Enterprise Management Incentives (EMI) scheme.
So what are the benefits of an EMI scheme? Firstly, it is an excellent way to allow your employees to acquire shares in a tax efficient way over a period of time. This can increase motivation among your workforce which, in turn, can improve their performance.
An EMI scheme is a good way of retaining key employees, particularly at critical times such as the early stages of your company or when you are working on a major project. By turning cash benefits into future share rewards, an EMI can effectively lock an employee in to your company until the point of a sale or another significant milestone is reached.
You may also want to reward loyal key employees for their efforts in achieving a sale, effectively giving them a share of the proceeds. Again, this is an excellent way to boost morale among your team and provides a clear incentive for others to put in maximum effort which, of course, is good news for your business.
It is important to bear in mind that once an employee exercises their share option, they become a co-owner of the company and their rights must be respected.
One of your first decisions will be what value to place on your company and its shares. This can be very subjective, which is why it is important to have the right advice from an accountant with experience of share schemes. At TWP, we can value your business and your shares so that you know how much you can afford to give employees without setting unrealistic targets that might not be met.
It is also a good idea to agree a share price with HM Revenue and Customs (HMRC). This not only helps you stay within your limits (currently £120,000 value of shares at grant per employee or £3 million in total for all option holders) but ensures the amount of income tax payable on exercise of option is known if you want to grant options at less than their market value.
This information is not only useful to your employees but important to you because if the options are granted at less than market value and then exercised at the point the business is sold then PAYE will apply to the undervalue.
To qualify to offer an EMI scheme, your company must have gross assets of less than £30 million and fewer than 250 full-time employees on the date that an option is granted. Certain trading activities can exclude a company from taking part in the scheme, including operating a nursing or residential care home, operating a hotel or guest house, farming and financial activities such as banking, lending, insurance or hire purchase financing.
At TWP, we can advise you on whether an EMI scheme, or any other employee share scheme, is right for your company and, if so, help you maximise the benefits.
For further information, please contact us on 01932 704700.