Share option scheme offer
In a turbulent year that’s been dominated by economic turmoil and generally grim news, it’s always good to accentuate the positive – and there are positives, even within this challenging climate.
One example of this, a development that has come as a pleasant surprise to many of us, has been the rising number of employee share schemes being rolled out in companies across Scotland.
In the months since lockdown took hold we’ve been busy with queries about EMI (Enterprise Management Incentive), a taxadvantaged share option scheme designed for small and medium-sized enterprises that enables companies to attract and retain key members of staff by offering equity within the business. They are typically, but not exclusively, used within start-ups, where cash is often tight, and offering share options can be a more viable means of attracting high-calibre people.
In the year of Covid-19, we may have expected a downturn in EMI activity as many companies have had to focus on the financial problems brought on by lockdown and social distancing measures, but that does not appear to be happening. Instead, over the past few months we’ve been helping set up schemes for a number of clients across a range of sectors, including fintech, cyber security and life science, which have strong growth potential and were keen to reward and further incentivise employees going forward.
Within the wider economy we are also seeing other significant factors that are driving the current rise in EMI schemes. The financial impact of Covid-19 has resulted in some companies being unable to offer their staff pay rises or bonuses. EMI offers an alternative solution for some of these businesses by enabling them to retain and incentivise employees without incurring an immediate impact on their cash flow.
For companies with an existing EMI scheme or for those looking to set up a new one, the current economic uncertainty can also make this an ideal time to agree a share valuation with HMRC. This process, which typically starts with HMRC considering the price paid by any third-party investors over the past year, is key in ensuring the recipients have certainty of their tax liabilities.as we look forward to a new year, Scottish businesses will be considering how they can maximise their productivity. With cash in short supply for many companies, it is likely we will see further interest in EMI schemes from those determined to secure and incentivise their key people to help them grow.
•Kirsty Paton, manager in the entrepreneurial tax team at Chiene + Tait