Share Option Schemes also go through
For the last sessions of Parliament before the Summer recess, most UKTECH readers were probably too unhappy at the grim news that IR35 had gone through to notice two important Share Option schemes were also included in the Finance Bill package that gained Royal Assent.
Launched last year by Gordon Brown in a blaze of e-commerce glory, both schemes include tax exemptions for employees, however the Enterprise Management Incentive (EMI) scheme is of most interest to smaller companies. In the original press release, the EMI was described as "a very different kind of targeted tax cut for those who are prepared to move from secure jobs and venture their time and effort to create wealth for our country..." The IR website adds further detail: "EM Incentives are intended to help smaller companies with potential for growth to recruit and retain high calibre employees, and to reward employees for taking a risk by investing their time and skills in helping small companies achieve their potential."
Qualifying companies can now grant options to employees. Essentially the scheme allows for share options (up to £100,000 worth of shares each) to be granted to up to 15 key employees. Directors are also eligible if they are not already shareholders and are full-time employees. However, as can be expected it is not straightforward to implement the scheme. Employing Companies must 'qualify' to run a scheme, but since there are no official approvals or clearance mechanism for EMI, the companies must simply notify the Inland Revenue when an EMI option is granted. Of perhaps more concern, is the need to value shares for the scheme. Since most qualifying businesses are likely to be unquoted, share value must be agreed in advance with the Inland Revenue – using the Revenue's own valuation service.
Reaction to the new scheme has been mixed. Despite the widespread 'consultation', many experts believe the scheme will turn out to be nothing more than an enlarged version of the existing executive share option scheme, which has an upper limit of £30,000. But then, as one well known Accountancy and Tax Advisory firm points out on their website "..the abolition of the (existing) executive scheme would be entirely consistent with the present Government's resentment of tax breaks perceived to benefit fat-cat directors." Their advice is companies should use the existing executive share option scheme £30,000 limit while they still can.
On the other hand, other advisors predict a rush from hi-tech and internet businesses to set up EMI schemes as a tax-efficient system for companies and individuals. These advisors may well be looking to cream off a share of the estimated £15,000 cost of setting up an EMI scheme….which presumably puts it outside the range of many small companies in the first place.
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Mark Roderick