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Investment incentives boosted

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22nd Mar 2012
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Companies wishing to grant share options to their employees under Enterprise Management Incentives (EMI) will see the employee limit on the value of shares more than double from £120,000 to £250,000.

This change will be introduced as soon as possible, subject to state aid approval, and is expected to help small and medium sized businesses retain and recruit “high calibre” employees.

Philip Fisher, head of employment tax and rewards at PKF, said the proposed changes to EMI are “attractive and simple” for smaller employers and are widely recognised as having a positive motivational effect. Fisher said the move will “prove a shot in the arm for smaller growing companies and go some way towards creating the ‘John Lewis economy’ to which the government aspires.”

The coalition also intends to broaden Entrepreneurs’ Relief (ER) to let employees take advantage of the reduced 10% capital gains tax on share disposals. The details are not yet confirmed, but clauses to be included in Finance Bill 2013 are expected to drop the requirement for individuals to hold 5% of the company to qualify for the relief.

Fisher added: “The holding period will move back from option exercise to option grant, making it easier for employees to take advantage of the lower rate.”

Paula Tallon from Gabelle also welcomed the news on ER for EMI options holders, but added: “It is a shame that it is delayed to 2013 however there is an opportunity for companies to incentivise employees with the prospect of a 10% tax rate.”

The PracticeWEB Budget Report highlighted further changes to Enterprise Incentive Schemes (EIS) and Venture Capital Trusts (VCTs). For the EIS:  which will increase as follows:

  • The employee limit will rise from 50 to 250
  • The gross assets limit of £7m before investment and £8m after will increase to £15m before and £16m after
  • The maximum annual amount that can be invested in both schemes will increase from £2m to £5m.

The rules for EIS and VCTs will be simplified so that:

  • There will be a relaxation in the rules defining when a person is connected to a company
  • The definition of qualifying shares will be widened
  • The £500 minimum investment threshold will be removed
  • The £1m investment limit by a VCT in a single company will be removed.

The changes to EIS will be effective on or after 6 April 2012 and the VCT changes on or after 1 April 2012.

In AccountingWEB’s live Budget blog, Startupbootcamp co-founder Carsten Kolbek praised the government’s moves in this direction. “We don’t really care about whether we pay 1 or 2% above or below normal rates - we want access to credit,” he said.

Calling EIS a “brilliant initiative”, he added, “[The] UK is really on the forefront when it comes to early stage investor incentive programs like EIS and I hope there will be more programs like that leaving it to the market to decide where money shall flow.”

Technical information on these measures are set out in tax information and impact notes (TIINs) in HMRC's Overview of Tax Legislation and Rates document (1.2Mb PDF download). To find the details quickly, search for the folling TIIN references:

- Enterprise Investment Scheme and Venture Capital Trusts: Simplification - A13
Enterprise Investment Scheme and Venture Capital Trusts: Increases and Thresholds -  A17
- Enterprise Management Incentives - A21

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