ONE of the key issues facing businesses large and small is finding and retaining good people. It is a major talking point among owners of limited companies who fear they cannot compete with the bigger salaries, share options and other incentives offered by corporate giants to attract staff.

However, there is help available. Enterprise management incentive (EMI) schemes have been specifically designed to help small, growing companies to recruit and retain high-calibre individuals by giving them the opportunity to acquire shares in the business.

This level of potential employee will often be looking for a remuneration package that includes some sort of share scheme. EMI schemes are an incentive to them to help build the value of the business. Performance targets can be set and the options do not have to be available to all employees.

The schemes offer selected employees the chance to share in the rewards of their own efforts, to compensate them for the fact that a smaller company may not be able to match salary levels paid elsewhere.

Options to purchase shares in the company can be issued to qualifying individuals and must be exercisable no more than ten years from date of grant.

It is possible to replace any existing share options with EMI options if the new grant is for the purpose of recruiting or retaining staff and provided the main purpose, or one of the main purposes, is not the avoidance of tax.

To be an Enterprise Management Incentive, a scheme must satisfy the terms of Schedule 14 of the Finance Act 2000.

There are advantages with EMI schemes in respect of tax and National Insurance, when the option is granted, exercised, or when the shares are sold.

However, the main benefit is that the taper relief begins to run from the date of the grant for capital gains purposes.

In the event that there is tax and National Insurance to pay, the company will normally sell enough of the shares that the option holder has acquired to realise funds to meet this liability.

The employer must give notice of the grant of the option to the Inland Revenue within 92 days; the Inland Revenue then has 12 months to raise objections or inquiries.

Tax law changes annually, of course, and companies should seek specific advice about their individual circumstances. But the EMI scheme could provide at least part of the answer for smaller limited companies that want to grow.

Published: 02/08/2005