Fri, 23 March 2012

The planned extension of a share enterprise scheme announced as part of this week’s Budget is great news for recruiters that want to tie in key executives, according to a partner at accountancy firm Baker Tilly.

David Heaton tells Recruiter: “The plan is to more than double the value limit for EMI [Enterprise Management Incentive] options granted to any one worker, from £120k of shares under option to £250k.

“The capital gains tax (CGT) rate on shares acquired by EMI option and sold at a gain may also be reduced in some cases to 10% by extending the scope of entrepreneurs’ relief.

“Trading businesses with no more than 250 employees and £30m of gross assets will be able to offer greater incentives to their key people to stay put and grow the business, with the carrot of a potential 10% tax rate on any capital gains they realise from the growth they achieve, rather than 50% income tax and 2% NIC or, currently, 28% CGT.

“The plan needs state aid approval from Brussels, but will begin shortly thereafter, with the extension for academics to follow, possibly next year.

“The EMI scheme has been a resounding success. The extension to larger holdings will enable entrepreneurial recruitment businesses to offer greater potential rewards to persuade their best people to stay without giving them cash, which is often a scarce resource, and the CGT change merely puts EMI option holders who meet the 5% test for entrepreneur’s relief back to where they were under the old taper relief regime.

“Recruitment businesses considering how to tie in key executives should welcome these proposals and watch for the detailed rules and the announcement of state aid approval from Brussels.”

Ian Temple, executive chairman of Hydrogen, adds: “Using share options as a motivator for employees depends upon the ability to cash them in, which gives a huge advantage to listed companies as there is a mechanism in place for staff to crystallise their value. We have found share schemes to be an important tool for incentivising senior staff, although the value of cash rewards should never be underestimated.”