ETASSUM53050 - Enterprise Management Incentives (EMI): Eligible employees: Material interest examples

Paragraph 28, Schedule 5 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)

Example 1

Material interest and shares under a Schedule 4 CSOP option;

01/01/2023

  • Issued ordinary share capital: 1000 shares
  • Shares held by employee A: 50 shares
  • Options held by employee A: Nil

A has interest in 5% - 50/1000; therefore not a material interest

01/02/2023

  • Schedule 4 CSOP option granted to employee A over 500 shares
  • To be satisfied by new issue shares

The grant on 01/02/2023 gives employee A:

  • An interest in 550 shares (50 + 500)
  • Out of a total of 1500 shares (1000 + 500 new issue shares)

This is an interest of 36.66% which is a material interest

This would prevent employee A being granted any EMI options.

Example 2

Material interest and shares under tax advantaged EMI options;

01/01/2023

  • Issued ordinary share capital: 1000 shares
  • Shares held by employee A: 50 shares
  • Options held by employee A: nil

A has interest in 5% - 50/1000; therefore not a material interest

01/02/2023

  • EMI option granted to employee A over 500 shares
  • To be satisfied by new issue shares

The grant on 01/02/2023 gives employee A:

  • An interest in 550 shares (50 + 500)
  • Out of a total of 1500 shares (1000 + 500 new shares)

EMI options are not taken into account for the material interest test. For the purpose of this test, A’s interest is 50 shares out of a total of 1000 shares. His interest remains at 5% and he can therefore be granted further EMI options.