Does your business qualify for EMI?

7 June 2022

In order to qualify for the EMI scheme, companies must meet qualifying trade and permanent establishment requirements.

advice : Employment and Tax

The Enterprise Management Incentives (EMI) scheme is the UK Government scheme that allows eligible companies to grant share options to employees tax-efficiently. This scheme helps companies incentivise, retain, and attract new talents without having to pay higher salaries. Find out more about how this scheme works on our website.

Does my company qualify for the EMI scheme?

In order to qualify for the EMI, companies must meet several requirements. Firstly, the company must carry on a qualifying trade on a commercial, profit-making basis, which doesn’t include certain trading activities that are excluded. Secondly, the company must have a permanent establishment in the UK. If the company is a parent company, at least one member of the group must meet all other trading activity requirements, whilst having a permanent establishment in the United Kingdom.

What is permanent establishment mean?

The company is considered to have a permanent establishment in the UK if: 

  • The company has a fixed place of business in the UK through which the company’s business is wholly or partly carried on; or
  • The company has an agent that is acting on its behalf and habitually exercises its authority to enter into contracts on behalf of the company

What is a fixed place of business?

The type of business determines the different premises or facilities required to be considered as having a fixed place of business. There is a list of examples that qualifies as a fixed place of business:

  • a place of management;
  • a branch;
  • an office;
  • a factory,
  • a workshop,
  • an installation or structure for the exploration of natural resources,
  • a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; and
  • a building site or construction or installation project.

However, premises will qualify as a permanent establishment only if concerning the business as a whole, the activities carried on there are not of a preparatory or auxiliary character. 

What is an agent?

The company can be also considered as having a permanent establishment in the UK when it has an agent who exercises authority in the UK to enter into contracts repeatedly now (and has done it in the past) on behalf of the company. The contracts in question must relate to the substantive business of the company and not merely to matters which would be considered preparatory or auxiliary. This is an alternative to the fixed place of business and the company needs to meet only one of the permanent establishment criteria to qualify for the EMI scheme.

What are qualifying trades?

If a company is not a member of a group, then it must exist wholly to carry on one or more qualifying trades. It must be either carrying on a qualifying trade or preparing to carry on a qualifying trade which must begin within two years of the options being granted. If the trade does not begin within this period, this is a disqualifying event. 

Please note that if a company carries on research & development from which a qualifying trade will be derived or benefit, that will be treated as carrying on a qualifying trade. On the other hand, if a company intends or is preparing to carry on research and development, that will qualify as carrying on a qualifying trade. Research and development activities are treated as research and development by normal accounting practice, but this excludes oil and gas exploration or appraisal.

When considering whether the trade is a qualifying trade, the holding and managing of property that is being used by the company, as well as holding shares to which investment relief is attributable, if this is not a substantial part of the company’s business, are disregarded.

More information on qualifying businesses can be found on Gov.uk website.

Nothing on this page is intended to be or should be construed or taken as accountancy, investment, tax or any other kind of advice. We recommend individuals and companies seek professional advice on their circumstances and matters.