How long does it take to set up an EMI scheme and what steps are involved?

Setting up an Enterprise Management Incentive Scheme (EMI) can bring many benefits to your business and your employees. Many clients of ours considering implementing a tax-advantaged EMI scheme often ask us how long it takes to set one up.

In some cases, for example, where there is a commercial necessity, these schemes can be set up in a few weeks. However, in most cases, these arrangements generally take 2-3 months from inception to implementation.

Company directors will normally want to consider each aspect of the process, and this is encouraged. Depending on how you deal with the below steps, you may be able to speed the process up. However, we recommend getting lawyers involved early on to make sure there are no issues in the process.

In this edition of Ask the Expert, we address the main steps for setting up an EMI scheme, and how long it may take to set one up.

1. Check if you are eligible for EMI

At the outset, you should establish whether your company and employees are eligible for EMI by completing an eligibility checklist, which your lawyers can help you with Should any issues arise, your legal team can consider matters further, and if in doubt, it’s possible to approach HMRC by way of an advance assurance application if you are seeking additional comfort on eligibility.

2. Get a valuation agreed with HMRC

From a time-efficiency perspective, it’s quite common to then consider getting a share valuation prepared and submitted to HMRC. Whilst not mandatory, EMI tax valuations are highly recommended. Not only do they set the tax position in stone, but advisers will always request HMRC valuation agreement letters when undertaking due diligence on investment rounds, or prior to a corporate event, such as a company sale. You should also be mindful of the size of any option “pool” and the number of EMI options you wish to grant initially as this should have some influence on your valuation documentation.

Typically, share values agreed with HMRC will determine the exercise or ‘strike’ price of your EMI options, and will also be relevant for company and individual EMI limit purposes.

3. Design the scheme and get the right corporate authorities in place

In parallel with the valuation submission (which usually takes 2-4 weeks for HMRC to consider) your lawyers will then take your scheme design instructions and draft your EMI scheme rules and form of EMI option agreement.

Your lawyers will also review your company’s articles of association, and any shareholder or subscription agreements that may be in place. Your legal team will then draft the necessary corporate ancillaries (board minutes, resolutions, investor consents) to allow your company to adopt the EMI scheme and approve the initial EMI option awards.

4. Granting the EMI options

Once all the above aspects are completed, your company will be able to grant EMI options to eligible directors and/or employees.

After your company and recipients have entered into their option agreements, your company must register the EMI scheme online with HMRC and ‘notify’ HMRC with details of your EMI grants. Your legal team should advise doing this as soon as possible after granting options, as failure to do so by three months following the end of the tax year of grant will result in your EMI options losing their tax-favoured status.

I want to set up an EMI scheme, what do I do next?

As experienced EMI solicitors, we can design an EMI share option plan that works for your company and employees. We can also assist specifically with the HMRC compliance aspects to provide a full service and are also on hand to assist you with your mandatory employment-related securities (ERS) end of tax year online annual returns (due by 6 July each year).

Fill out the short enquiry form below and a member of our team will be in contact. In the meantime, you can find out more by reading our frequently asked questions on setting up an EMI scheme.