Small business owners could soon see a major tax break, as the chancellor plans to lift the cap on the Enterprise Management Incentives (EMIs) scheme.
EMIs often have tax benefits for both businesses and employees – as well as helping with employee retention.
With rumours the cap on EMIs is about to be lifted, here’s what small businesses need to know.
What are Enterprise Management Incentives?
Enterprise Management Incentives make up a UK government-backed scheme for small businesses, allowing them to offer share options to employees.
Tax benefits for employees
Businesses grant employees the option to buy shares at a future date for a pre-agreed price – these then have tax advantages for employees as there’s no income tax or National Insurance to pay.
If your employees sell a share purchased through the EMI scheme, they’ll only pay capital gains tax at the lower rate (18 per cent), rather than the standard rate – as long as the shares are not sold within 24 months of purchasing.
Tax benefits for businesses
Businesses offering EMIs can then claim corporation tax relief when employees buy share options. This relief is usually equal to the profit the employee makes on the share purchase.
HMRC then views this profit as an allowable business expense for the company, similar to an employee bonus or salary payment. This tax deduction effectively lowers a company’s taxable profit for the year – reducing the amount of corporation tax the business has to pay.
Lifting the cap on tax incentives
The EMI scheme currently has a cap of £250,000 worth of shares that an employee can be granted over a three-year period. But insiders reveal that Rachel Reeves is considering lifting this cap by “a multiple” of its current level.
Raising this cap would allow small businesses to offer significantly more valuable, tax-free share options to senior employees. This helps them compete with larger companies to attract and retain top talent without incurring high tax liabilities.
The chancellor could reveal the lifting of the cap on 26 November as part of this year’s Autumn Budget.
Does your business qualify for the EMI scheme?
To qualify for the EMI scheme, your business must not:
- have more than 250 employees
- have assets of less than £30m
- be majority owned or controlled by another company
- be in an excluded industry – such as banking, farming, property development, or leasing
More tax guides for small businesses
- What limited company expenses can I claim?
- Self-employed expenses in the UK – what can you claim?
- Simplified expenses: a self-employed guide to flat rate expenses
- New tax rules – applications open for Making Tax Digital exemptions
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