EMI Option | Non EMI Option | ||
Employee | |||
Gross Gain | £150,000 | £150,000 | The “Gross Gain” is used to refer to the value delivered to the employee following payment of the option price but before the deduction of any tax or NIC. |
Income Tax (at 45%) | £0 | (£67,500) | No income tax arises in respect of the EMI scheme The Gross Gain delivered through the unapproved option is subject to income tax at the employee’s marginal rate. |
Employees’ NIC (at 2%) | £0 | (£3,000) | No employees’ NIC arises in respect of the EMI option. The Gross Gain delivered through the unapproved option is subject to both employees’ and employer’s NIC. |
Capital Gains Tax (at 10%) | (£13,870) | £0 | In respect of the EMI option, the employee is subject to CGT at the entrepreneurs’ relief rate of 10% when the shares are sold. |
Net Gain to Employee | £136,130 | £79,500 | Additional value of £56,630 is therefore delivered to the employee through the EMI option when compared to the unapproved option. The EMI option returns 90.7% of value to the employee, while the unapproved option only 53%. |
EMI Option | Non EMI Option | ||
Employer | |||
Employer’s NIC (at 13.8%) | £0 | (£20,700) | No employer’s NIC arises in respect of the EMI option. The Gross Gain delivered through the unapproved option is subject to both employees’ and employer’s NIC. |
Dilution to shareholders | (£150,000) | (£150,000) | In each case, the overall value of the shares collectively held by the remaining shareholders is diluted by the value of the Gross Gain delivered to the employee. For shareholders however the overall growth in value of the business will usually outweigh the dilutive effect of options. |
Corporation tax relief (at 19%) | £28,500 | £32,433 | Corporation tax relief (which takes effect as a reduction in the company’s profits) is available to the company in respect of the Gross Gain and any employer’s NIC. The CT relief in respect of the EMI option is calculated on the Gross Gain (£250,000), whereas the CT relief in respect of the unapproved option is based on the Gross Gain (£150,000) plus the employer’s NIC arising (£20,700). |
“Cost” to Shareholders | (£121,500) | (£138,267) | |
After Tax Gain To Employee | 112% | 56.8% |