ETASSUM53040 - Enterprise Management Incentives (EMI): Eligible employees: Material interest
Paragraphs 28, 29 & 30, Schedule 5 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)
An employee is not eligible if they have a material interest in the company whose shares are under option, or, if that company is a parent company, in any group company. A material interest is either:
- beneficial ownership of, or the ability to control directly or indirectly, more than 30% of the ordinary share capital of the company, or
- where the company is a close company, possession of or entitlement to acquire rights that would give 30% of the assets, if the company were to be wound up, and make them available for distribution among the participators.
An employee has a material interest if:
- they alone have a material interest in the company,
- they, together with their associates, have a material interest in the company, or
- any associate of theirs has a material interest in the company, see ETASSUM53060 for the meaning of “associate.”
If an employee acquires a material interest greater than 30% after they have been granted an EMI option, the option(s) they hold will not be affected but they will not be eligible for the grant of any more EMI options.
When testing whether an employee has a material interest, all shares over which the employee has an option has to be taken into account, except shares that are under EMI option.
If any of the company’s shares are held by the trustees of a Schedule 2 SIP then, provided that the shares have not been appropriated to the employee or their associate, these shares are not taken into account in determining the shares to be attributed to the employee or their associate for the material interest test. These shares are still counted as part of the ordinary share capital of the company.