The full details of a new initiative to allow small higher risk companies to offer up to 1 million pounds worth of share options to help them recruit and retain the high calibre people that they need to make their company successful and grow were outlined today.

Enterprise Management Incentives (EMI) are designed to help small companies attract and retain the key people they need and to reward employees for taking a risk by investing their time and skills in helping small companies achieve their potential.

The Chancellor said:
“The new Enterprise Management Incentives will help Britain’s new businesses compete in the global market for the best skills and talents. It will offer an incentive for people to work here that will match what is available in the US and exceed what most other countries offer.”

The Secretary of State for Trade and Industry, Stephen Byers said:
“For companies to succeed in the modern market place they must be able to compete with the best. Recruiting and keeping the talented individuals is one way of achieving this.
“For companies to grow and compete they must have the best talent available to them. This scheme will help them achieve it.”

The new proposals being published today will allow a company to grant up to 1 million pounds of share options that will normally be free of income tax for the employee and there will normally be no National Insurance charges for employer or employee. Moreover when the shares are sold, extra capital gains tax relief will significantly reduce the amount of CGT payable.

Under the original proposal:
independent trading companies with gross assets not exceeding 15 million pounds will be able to reward up to 10 key employees with tax-advantaged share options, each receiving options over shares worth up to 100,000 pounds at the time of grant;
In addition, several significant enhancements are being announced today so that:
when the shares are sold, the gain arising will qualify for the more generous business assets taper and, in addition, this relief will start from the date the options are granted. In many cases, the resulting capital gains tax bill will be similar to, and sometimes lower than, the equivalent tax payable in other countries, including the US.

For example: a key employee is granted an EMI option over 100,000 shares when the market value is 1 pound a share. The employee exercises the option 3 years later when the shares are worth 3 pound each, making a gain of 200,000 pounds. No income tax or NICs will be payable on the gain of 200,000 pounds. The employee decides to sell the shares 2 years later when they are worth 500,000 pounds. Under the new capital gains tax proposals for EMI announced today and with a proposed 5 year taper, the gain of 400,000 pounds will be chargeable at an effective capital gains rate of only 10 per cent, giving a tax bill of 40,000 pounds;
EMI can be offered by both listed and unlisted companies, providing they meet the qualifying conditions;
the options can be given to anyone working for the company for a substantial amount of their time, whether they are an inventor, a scientist, or an expert in raising finance;
red tape will be cut by using a simple notification process rather than the normal approvals system. Companies can be much more flexible that at present in the terms and conditions of the options they grant compared with existing tax-advantaged option schemes;
there will be normally be no tax or National Insurance for the employee to pay when the options are exercised; nor will there normally be any National Insurance charge for the employer.

The Inland Revenue estimates that over 2,200 companies will take up EMIs over the first three years at a cost of around 45 pounds million a year to the Exchequer.

The Government intends that legislation will be introduced in the Finance Bill 2000, so that companies will be able to use EMIs from the time of Royal Assent, which is expected to be in July 2000.


1. The Inland Revenue is today issuing draft legislation and a commentary. Copies can be downloaded from the Inland Revenue’s website


or obtained by post from:

Scott Johnson
Room 110, New Wing
Somerset House
London WC2R 1LB

2. The Government intends to review EMI after five years to see if it is fulfilling its purpose and aims.

3. In Budget 99 the Chancellor announced his intention to legislate in Finance Bill 2000 a new Enterprise Management Incentives scheme which would be targeted specifically at small higher risk trading companies to help them recruit and retain key employees.

4. A possible framework for such a scheme was set out in a technical note published by the Inland Revenue in March and comments were invited. In addition, an advisory group of share scheme practitioners, representatives of business and the trade unions, and a leading academic have worked with the Inland Revenue and Treasury officials on the design of EMI. Nearly 40 responses to the technical note were taken into account, along with other valuable input from a wide range of interested parties. These views have been carefully considered and are reflected in the details of EMI published today.

5. Ministers have said that no decisions about the existing Inland Revenue approved schemes will be taken until everyone has the opportunity to comment on the draft legislation for EMI and for the new all-employee plan also being published today (please see Inland Revenue news release 5.)

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