Emerging out of the pandemic, businesses might want to consider how to reward, repay and incentivise existing employees, and also how to attract good quality candidates to enable and facilitate recovery plans.

If preservation of cash will have greater significance in the future, it may be that an equitable stake in the business may be a valuable tool for creating and retaining a winning team going forward.

Many privately held companies may have experienced a decrease in value, such that granting options in a tax efficient manner to staff might now be a good commercial and forward thinking decision.

One such idea is to put in place an Enterprise Management Incentive (“EMI”) scheme.

• A tax efficient share option scheme for small, higher risk, privately owned companies;
• Options can be granted as part of a scheme to a selection of employees or solely to one employee, with others added later;
• Options can be granted over existing company shares (i.e. currently held by a shareholder) or over new shares but no shares are actually held by employees on the grant of an option, only the right to acquire shares at a later date;
• The exercise of the options can be made subject to conditions (time spent/performance based) or may be exercisable on an “exit” (e.g. if the company is sold at a later date);
• Setting an exercise price that is less than market value has tax consequences when the option is exercised and thus when the company’s market value is lower and in anticipation of economic recovery, this may be a good time to put such a scheme in place;
• A corporation tax deduction may be available to the employer company; and
• There is no income tax liability (on employer or employee) on the grant of an option nor on the exercise of the option if the exercise price was at least equal to the market value of the shares at grant.

A stake in the business can make an employee feel valued, as well as boost productivity as they can directly benefit from their personal hard work and input.

Whilst many good prospects could be flooded with potential roles, an incentive scheme could be your differentiator to attract and retain the best candidates.

If you or your business require information regarding anything in this blog or generally about your business or any other corporate matter, please call Sarah Ward, one of our Corporate partners, on 07889 589596 or e-mail Sarah at sward@georgegreen.co.uk for advice and assistance.