Options granted under the enterprise management incentive scheme allow a trading company or group to offer share options to its full time employees without any income tax charge on the increase in value of the shares between the date the option is granted and the date it is exercised.

If therefore options are granted to employees to acquire shares at their current market value, there will be no income tax charge if, when the options are exercised, the shares have a higher value. The employees will only be subject to capital gains tax on the difference between the disposal proceeds of the shares (when sold) and the price paid for them.

In the current economic climate, share valuations have been falling and this presents an opportunity for companies to grant share options to employees without exceeding the maximum limits for EMI share options (£120,000 per employee with an overall limit of £3 million in total).

EMI options can be an efficient, and cost effective, method of rewarding employees. The terms upon which the options are granted can be flexible. If they are only exercisable on a sale of the shares in the company, this provides a means of incentivising employees without the proprietors of the company suffering any immediate dilution in their shareholdings.

If you require any further advice or assistance please contact Nick Traill or a member of the Commercial team at Wortley Byers on 01277 268301 or ntraill@wortleybyers.co.uk.

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