One of the most popular cashless remuneration options used by companies is the Enterprise Management Incentive (EMI) Scheme. This equity reward share option scheme was introduced by the government in 2000 and has continued to grow in popularity, accounting for almost 83% of all tax-advantaged equity schemes registered with HMRC during 2017. It is a creative method of remunerating employees and has been a resounding success as it not only allows employees to avoid income tax and NIC typically associated with bonuses and salary increases but also allows the employing company to claim a corporation tax deduction.
The most current HMRC statistics available suggest that UK employees received an estimated total of £920m in income tax and NIC relief through the use of various equity reward schemes during 2017. With income tax rates likely to increase in the future to help rebalance the economy, it is anticipated that tax-efficient equity remuneration schemes will increase in popularity. Where businesses do not have the cash resources to provide competitive salaries and bonuses as they struggle to recover, the ability to offer tax-efficient share-based remuneration may help employers retain those vital to the future of their businesses.
Northern Ireland family companies, wanting to consider alternative methods of remunerating staff, can feel hesitant about relinquishing shares, however; particularly Ordinary Shares which usually carry voting rights and dividend rights. Business owners regularly want to retain 100 percent control of their business, don’t necessarily want to make dividend payments to new shareholders, and invariably want to ensure historical value is ring-fenced and protected for future generations. To provide this protection and ensure existing owners retain full control of their businesses, companies often use Growth Shares to remunerate their employees, rather than Ordinary Shares. This special class of share can be created to allow employees to share in the ‘future’ growth of the business; growth which they will help generate. The rights attaching to a Growth Share are flexible and are decided by the employer. Most Growth Shares only permit the employee to benefit from the value which exceeds the current market value of the company; a value which is set and agreed at the time the Growth Share is awarded. This means that the current value of the business can be protected and ring-fenced for the owner and the existing shareholders can retain full control.
Although setting up an EMI scheme and granting Growth Shares to employees can be done with relative ease, there are a number of requirements and conditions which must be fulfilled and such remuneration plans may not be feasible in all cases.
The advice in this column is specific to the facts surrounding the questions posed. Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.