Fostering Employee Commitment in the competitive world of Tech
Background
Ilosta is a pioneering company in the field of engineering, having developed cutting-edge technology using a physics-based AI algorithm to enhance the reliability and extend the lifespan of engineering structures.
Ilosta, existing clients of Ammu, accessed additional funding through the Glasgow City Council’s Business Growth program, which enabled them to explore and implement an employee incentive scheme.
Challenge:
A key component of Ilosta’s success was built on a foundation of highly skilled employees. To continue the stellar growth the founder of Ilosta wanted to retain and reward the senior team. The founder was eager to find an effective way to retain talent in a tax efficient way for the business and employees.
Solution:
Ammu helped Ilosta devise a Management Incentive (EMI) scheme. This was a good solution as the EMI scheme is aimed at providing tax-advantage benefits to the senior staff, to incentivise their long-term commitment to the company.
This is a popular scheme that over 14,000 UK companies embrace as employing staff with a vested interest in the success of the company will help a company outperform the competition.
It works by giving Ilosta employees the right to buy a set number of shares at a set price decided now. The employees have the right to buy at a set time in the future based on prescribed restrictions. Restrictions are flexible, for example they can be based on length of service, sales targets and designated as ‘Exit Only’ as in on the sale of the company. Put simply, as the Ilosta share price increases so does the employees’ return on investment.
Getting the right company valuation is critical both for the business and existing investors while also ensuring the employees get the best value for the share options.
Ammu’s role included:
- Conducting a comprehensive valuation of shares and submitting company valuation to HMRC.
- Liaising with solicitors who dealt with the legal formalities such as creating a share pool and lodging with Companies House whilst Ammu reported to HMRC within the stipulated deadlines.
- Submitting the VAL231 form and ensuring compliance with HMRC regulations.
- Facilitating the finalisation of share options and notifying HMRC within the 92-day period from date share options are granted.
Results:
The EMI scheme introduced by Ammu brings 3 key benefits:
Employee Benefits: Employees could benefit from a lower capital gains tax rates at 10% instead of the standard 20%, under Business Asset Disposal Relief (formally known as Entrepreneurs Relief), when they sell their shares. Additionally, there will be no immediate tax liability on receiving the shares if the exercise price matches the market value at the time the share price is granted.
Company Benefits: Ilosta benefits from Corporation Tax relief, which aligned with the market value of the shares at the time they are exercised compared to the price employees paid.
Cultural Impact: The introduction of the EMI scheme helps reinforce a culture of ownership and commitment among senior employees, directly contributing to Ilosta’s growth and in turn the attractiveness to prospective buyers.
Conclusion:
The strategic implementation of the EMI scheme by Ammu Accountancy not only resolved Ilosta’s challenge of retaining key employees but also leveraged financial employee incentives to continue its growth trajectory and market competitiveness.
This client relationship between Ammu and Ilosta, highlighted the effectiveness of tailored financial strategies in employee retention and business expansion.
Who is eligible for EMI scheme.
If you are UK company with fewer than 250 employees and assets less than £30m and not majority owned you are likely to be eligible for EMI Scheme.
As always there are exceptions and your organisation cannot be included if it is in the following sectors: banking, property development, ship building, farming or legal services.
Get in touch with Emily at info@ammu.uk to discuss an Employee incentive Scheme for your company.
Ammu is proud to be part of Glasgow City Council’s Business Growth Programme, a multi-lot framework that aims to encourage and support growth in the Glasgow business ecosystem.
For more information about Ammu and our comprehensive range of accounting, tax and management information services visit www.ammu.uk