The legislation, primarily in ITEPA 2003, Sch 7, gives employers a strong clue as to the intended benefits of Enterprise Management Incentives (EMI) schemes. It suggests that they should be used to recruit and retain members of staff.
When the legislation was originally introduced in 2000, the belief was that small, fast growing companies, particularly in the IT sector, would need a boost to assist in the retention of staff in a highly competitive market.
Many start ups struggle to pay market rates and are therefore constantly at risk of losing the employees that they need to develop. As a result, EMI were introduced to help small companies. Today, most smaller companies are able to benefit from EMI and if they are able to do so, almost certainly should take advantage.
A good source of further information is at ETASSUM50000.
EMI operates through the use of share options, rather than transferring shares to employees directly. Option holders may be permitted to exercise options and acquire shares after a very short period under EMI, although that is not the general way in which schemes are operated.
Share options allow employees to acquire shares at a fixed date in the future or following a predetermined event. The price that they will pay to acquire their shares is determined at the start of the process when the option is granted and in almost all cases, so is any income tax and NIC liability that they will face. This gives all parties a welcome degree of certainty, as does the knowledge that the scheme is endorsed by the government.
The use of options means that employees face no upfront exposure at all, with nothing to pay until the time at which they ultimately decide to exercise an option and acquire shares in their employing company. This contrasts very favourably with alternative routes to share ownership that will usually require a significant capital outlay before the employee can get any chance of involvement.