The Essential Guide to for UK Fast Growth Companies Tax Incentives

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Britain is a world-leading hub for technology firms and startups, with a new tech business being formed in London every hour. The sector is booming, creating jobs at twice the rate of companies in nondigital industries. One of the key reasons for this success is a generous tax regime offered to fastgrowing businesses.
About Techcelerate Ventures

Tech Investment and Growth Advisory for Series A in the UK, operating in £150k to £5m investment market, working with #SaaS #FinTech #HealthTech #MarketPlaces and #PropTech companies.
business Tax company share relief Fast Growth business entrepreneur relief EIS Tax relief Scheme year Tax Incentive qualify Essential Guide tech invest Income Tax
About Techcelerate Ventures

Tech Investment and Growth Advisory for Series A in the UK, operating in £150k to £5m investment market, working with #SaaS #FinTech #HealthTech #MarketPlaces and #PropTech companies.
business Tax company share relief Fast Growth business entrepreneur relief EIS Tax relief Scheme year Tax Incentive qualify Essential Guide tech invest Income Tax
The Essential Guide to 
for Fast Growth Companies
Tax Incentives
IN ASSOCIATION WITH
Contents
3 
Introduction
How to use tax to benefit your tech business
 
What is The Enterprise Investment Scheme?
 
What is a knowledge-intensive company?
 
Why investors like The Enterprise Investment Scheme
 
What is The Seed Enterprise Investment Scheme?
	
How	owner-managers	could	benefit
 
Where companies go wrong
Use tax to incentivise your staff
 
What is an Enterprise Management Incentive scheme?
	
The	pros	and	cons	of	Enterprise	Management	Incentive	schemes	for	tech	firms
 
Incentivising staff through share schemes
Could you make R&D tax relief work for your business?
 
How R&D relief works
 
Types of R&D relief
	
What	qualifies	for	R&D	tax	relief?
	
What	costs	qualify	for	R&D	tax	credits?
 
What businesses get wrong
Entrepreneurs’ Relief: Helping you save tax on the sale of your business
 
What is Entrepreneurs’ Relief?
 
How Entrepreneurs’ Relief can be used
 
Employees with Enterprise Management Incentive shares
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EISs	are	unquoted	investments	which	are	highly	illiquid,	with	investors	potentially	having	difficulty	in	realising	their	investment	at	a	
given	time.	They	should	therefore	only	be	considered	as	a	long-term	investment,	i.e	over	five	years.	They	also	carry	the	risk	of	potentially	
losing all or part of your capital investment and therefore the return of your capital is not guaranteed.
Page 3
The Essential Guide to Tax Incentives for Fast Growth Businesses
Britain is a world-leading hub for technology firms 
and startups, with a new tech business being 
formed in London every hour. The sector is booming, 
creating jobs at twice the rate of companies in non-
digital industries. One of the key reasons for this 
success is a generous tax regime offered to fast-
growing businesses. 
Last year was a great year for funding. British digital 
tech companies raised £5.8bn in venture capital 
investment during 2017, almost double the 
previous year.
The UK is the envy of the world in terms of how 
innovation is nurtured. Alongside the great 
imagination, dynamism, and expertise in evidence 
across the digital industries, the Government has 
created a favourable tax environment for these 
pioneering enterprises, encouraging investment 
and driving business growth.
Introduction
Tax reliefs such as the Enterprise Investment 
Scheme (EIS)/ Seed Enterprise Investment Scheme 
(SEIS), Enterprise Management Incentive (EMI) 
share scheme, Research and Development (R&D) 
tax credits and Entrepreneurs’ Relief make it 
easier for smaller, higher risk companies to attract 
investors. Fast growth tech businesses exist in 
a world of constant change and face particular 
challenges when scaling up their operations. Tax 
reliefs available can also aid cash flow as well as 
helping employers recruit and retain the best talent. 
Vitally, these schemes are designed to reward 
those who are developing new technologies, 
encouraging them to build the big businesses of 
tomorrow. 
Fergus Caheny
Partner
Smith & Williamson
020 7131 4216
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The Essential Guide to Tax Incentives for Fast Growth Businesses
An unquoted trading company can raise up to 
£5m in any 12-month period (under the Venture 
Capital Schemes comprising SEIS/EIS/Venture 
Capital Trust investment) by offering tax reliefs 
to those subscribing for new shares or securities. 
Up to £10m can be raised in the same period by 
so-called “knowledge-intensive companies”. Up to 
£12m can be raised in the enterprise’s lifetime, with 
this cap rising to £20m for “knowledge-intensive 
companies”. 
EIS monies must be used to grow or develop 
the business, whether, for example, that is hiring 
more staff, developing new products / services, or 
moving premises – anything indicative of company 
expansion. 
What is EIS?
How to use tax to benefit 
your tech business
EIS and SEIS offer generous Income Tax, Capital 
Gains Tax (CGT) and Inheritance Tax reliefs for 
those investing cash for equity in new or relatively 
early-stage businesses, with digital and technology 
firms particularly benefiting. The schemes are very 
effective in attracting investors, as they are a highly 
tax-efficient way to invest in higher risk, innovative, 
fast-growth companies. 
To qualify for EIS, a company 
must, amongst other things:
 
• Have its first commercial sale less 
than seven years ago.
• Be carrying out a qualifying activity.
• Have fewer than 250 employees and 
less than £15m in gross assets at 
the time of the relevant investment.
• Not be quoted on a recognised 
stock exchange.
• Have a “permanent establishment” 
in the UK.
• 
Not be under the control of another 
company, or of another company 
and any other person connected 
with that other company.
The business must be registered with HMRC to
be an EIS or SEIS company. A pre-clearance process 
is available whereby HMRC can grant assurance 
under the schemes before the relevant shares 
are issued. This often helps the marketing of the 
enterprise as an investment prospect.
Investors in EIS firms can subscribe up to £1m per 
tax year in one or more EIS qualifying companies, 
receiving 30% up front income tax relief, with no CGT 
liability on the sale of the relevant shares if they are 
held for at least three years. There is a facility to 
carry back income tax relief to the previous tax year 
if the investor has unused EIS capacity. The £1m per 
tax year subscription limit is increased to £2m for 
investment in knowledge-intensive companies.
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The Essential Guide to Tax Incentives for Fast Growth Businesses
What is a knowledge-intensive 
company?
• Spending 10% of operating costs on R&D in each 
of  the three years before investment, or at least 
15% in any one of those three years. 
• 
Creating its own intellectual property, where it is 
reasonable to assume that most of the company’s 
business will derive from this IP within 10  years.
• Having at least 20%  of full-time equivalent 
employees as “skilled employees” having a 
relevant master’s degree or equivalent higher 
qualification.
10%
Spent on operating costs on R&D in 
each of the 3 years before investment.
Within
of full-time employees have a relevant 
master’s degree or equivalent higher 
qualification.
the company’s business will derive 
from its own intellectual property.
10 years
20%
Knowledge-intensive businesses are governed by more flexible rules and can raise more money. The good 
news is most tech businesses are likely to qualify. 
Knowledge-intensive businesses can be older than standard EIS companies – a company can have traded 
for up to 10  years in relation to attracting EIS investment. 
HMRC classifies a knowledge-intensive business as:
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The Essential Guide to Tax Incentives for Fast Growth Businesses
Why investors like EIS
EIS is likely to be as good as it gets for investors 
in terms of balancing the tax reliefs against the 
inherent risk of the company failing. It is likely 
to apply to slightly more mature companies and 
therefore provide some reassurance to many 
investors.  Any shares held for the qualifying period 
(three years) are CGT free, this means that relevant 
shareholders do not have to pay tax on any profit 
made through holding their shares. 
CGT arising on other gains can be deferred 
against the amount invested in EIS shares if the 
reinvestment takes place in the period one year 
before and three years after the date of the relevant 
disposal. Even if EIS shares are disposed at a loss, 
an investor can offset this against their taxable 
income in the tax year the loss crystallises. 
For a 45 per cent taxpayer, the combination of EIS 
income tax and loss relief means only 38.5% of the 
original investment is at risk. If shares are retained 
for at least two years, the shareholding will attract 
business property relief at 100% for inheritance tax 
purposes.
Investors in SEIS firms can subscribe up to 
£100,000 per tax year in one or more SEIS qualifying 
companies, receiving 50% up front income tax relief, 
with no CGT liability on the sale of the relevant 
shares if they are held for at least three years. There 
is a facility to carry back income tax relief to the 
previous tax year if the investor has unused SEIS 
capacity.
Many fledgling tech businesses have benefitted 
from SEIS. Often, firms with few assets undertake 
a fundraising combining both SEIS and EIS, with 
SEIS covering the first £150,000 raised.
What is SEIS?
An SEIS company must 
have: 
• Gross assets of less than £200,000 
at the time of the relevant 
investment.
• No more than 25 employees at the 
time of the relevant investment.
• Been trading for less than two years.
SEIS gives investors even bigger tax breaks on 
subscribing cash for new shares in startups.
With	tax	relief	options	on	income	tax,	
CGT and IHT, the EIS and SEIS could 
be	the	last	of	the	great	tax	breaks.
Adrian Walton
Partner  |  Smith & Williamson  |  Business Tax  |  020 7131 4180
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The Essential Guide to Tax Incentives for Fast Growth Businesses
How owner-managers 
could benefit
Many business owners do not realise EIS relief 
can be available to owner-managers as well as 
passive investors. It is possible to claim EIS or SEIS 
if a person owns less than or equal to 30% of the 
company’s equity – but not if they have ever owned 
more.
 
With expert guidance, a business can be structured 
from the outset so those involved benefit fully 
from EIS and/or SEIS. For example, a startup 
comprising four people could be arranged with 
three individuals holding 30% each, and one 
unassociated person retaining 10%. That way, 
founders could be eligible for SEIS/EIS relief. 
Where companies can 
go wrong
The rules around becoming an EIS and/or an SEIS 
qualifying company are complex. Some common 
errors include:
Businesses try registering with HMRC 
themselves. Pre-clearance is complicated, so 
take expert advice.
Companies issue EIS shares before investors 
have paid for them.
Young tech businesses with few assets often 
get pre-clearance on EIS and SEIS schemes 
simultaneously. However, EIS and SEIS 
shares cannot be issued on the same day.
The practicalities of the share issue must 
be documented properly, with Companies 
House forms completed and the company’s 
statutory register of members updated. 
For EIS purposes, if an investor is involved 
in the business, he or she can become a 
director only if appointed after the relevant 
EIS shares have been issued. If they become 
an employee, not a director, EIS/SEIS income 
tax relief is not available. 
Owner managers holding more than 30% of 
a company’s shares cannot claim EIS/SEIS 
income tax relief. 
A tech firm whose revenue stream is from 
licence fees or royalties from intellectual 
property only qualifies for EIS if most of the 
IP’s value was created by the company (or a 
qualifying subsidiary) itself. 
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The Essential Guide to Tax Incentives for Fast Growth Businesses
EMI share schemes are tax-efficient for both 
businesses and employees. The staff member 
pays no income tax or National Insurance when the 
option is exercised, as long as the shares are bought 
for at least their market value when granted. Plus, 
the company receives a corporation tax deduction 
when staff exercise their options. The first question 
is: does your business qualify? 
Use tax to 
incentivise your staff
What is an EMI scheme?
Tech founders are facing increased competition 
when it comes to hiring the right talent. Few 
startups have cash to pay big salaries, so 
share options have become a popular form of 
compensation. Offering workers a potential stake 
in an enterprise’s future growth via an Enterprise 
Management Incentives (EMI) share scheme 
can be an effective way to  build a workforce and 
scale a business. The offer of share options can 
attract employees who recognise a fast-growth 
firm with great potential. It can also drive a team’s 
motivation to make the operation succeed. 
Increasingly, millennials drawn to the tech field 
expect an EMI scheme to be in place as an added 
incentive to stay with an organisation. 
The business 
must be 
operating in the 
UK and
 independent. 
The	firm	must	
have fewer than 
250 
full-time 
equivalent staff. 
An employee can only 
be granted options over 
shares up to a value of 
£250,000. No option 
holder must own or 
control more than 30% 
of the company.
There are certain conditions a company – and the employee being 
awarded share options – must meet:
The business 
should have 
no more than 
£30m of 
assets.
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The Essential Guide to Tax Incentives for Fast Growth Businesses
The employer must weigh up the advantages and disadvantages of EMI schemes, and consider what they 
want to achieve. Is the intention to help with recruitment? Incentivising senior management to create business 
growth may be a priority. Problems occur when these conversations do not take place at the outset, so think 
about all possible scenarios. 
The pros & cons of EMIs for tech firms
Pros
Increasingly, tech businesses want EMI 
schemes because they cannot recruit 
without one. 
EMIs can aid retention since employees 
offered share options feel invested in 
the business, whether they exercise their 
options immediately, or opt to later. 
Share options boost motivation, as 
someone being awarded an option 
typically has to meet measurable criteria 
before they are able to exercise their 
options. Scheme rules should maximise 
flexibility, specifying what is required from 
each individual. Companies can award 
options with no conditions attached, so 
employees can exercise and hold shares 
straightaway.
For the employee, any growth in value 
from today’s date to the share’s sale is 
subject in most cases to a lower rate 
of tax (CGT and not to income tax). If 
the period from the award of the share 
option to the sale of the share is at least 
12 months, any CGT also qualifies for 
Entrepreneurs’ Relief – thus reducing the 
rate of CGT payable.
Businesses become eligible for a 
deduction on their corporation tax bill 
when staff members exercise their 
options.
Many investors want to see an EMI 
scheme in place as it gives employees an 
incentive to create growth and value in the 
company’s shares. 
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The Essential Guide to Tax Incentives for Fast Growth Businesses
If a tech company wants to attract, reward, and 
incentivise staff, and it qualifies for an EMI share 
scheme, that will usually be the best option for the 
business and its employees. Cash bonuses give 
a person money today, but little incentive to work 
hard tomorrow. And while some business owners 
favour the simplicity of unapproved share options, 
they carry no major tax advantages. For tech 
businesses, the EMI share option costs nothing at 
the outset, but can be a way to reward sustained 
effort to take an enterprise to the next level.  
Incentivising staff 
through share schemes
Cons
Some companies let all staff participate 
in an EMI scheme, which risks the shares’ 
value becoming diluted. Staff members 
who exercised options early find their 
shares diminishing in value as more 
employees join and further shares are 
issued. Equally, if the company goes 
through a bad patch, the value of shares 
may drop. 
If options cannot be exercised until an 
exit event, employees are not materially 
committed to the business. Some 
companies insist senior employees 
exercise and pay for their shares for this 
reason. 
Startups might promise early joiners a 
percentage of the company, then fail to do 
the paperwork. This can prove expensive 
since shares worth their nominal value 
when the person joined often become 
more valuable later. The employee faces 
a big income tax bill due to the shares’ 
growth in value, or the business must pay 
a bonus to cover the individual’s tax. 
Some businesses leave the way open to 
minority shareholders uniting to prevent a 
future company sale by failing to include 
drag and tag along provisions in the 
shareholder agreement. Drag along rights 
allow a majority shareholder to force 
remaining minority shareholders to accept 
a third party offer to buy the business. Tag 
along rights protect minority shareholders, 
entitling them to participate in a majority 
shareholder’s sale of shares at the same 
time for the same price.
An EMI scheme must be registered with 
HMRC, and the tax authorities must be 
notified of the option awards within 92 
days of their being granted. Businesses 
must handle this extra administration but 
most of this process can be outsourced.
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Whilst	EMI	offers	fantastic	tax	breaks	
and	flexibility	for	fast-growing	tech	
companies, considered design and 
implementation is often required to 
make	the	most	of	these	benefits.
Inez Anderson
Partner  |  Smith & Williamson 
Employment Tax & Incentives  |  020 7131 4919 
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The Essential Guide to Tax Incentives for Fast Growth Businesses
Could you make R&D 
tax relief work for 
businesses?
How does R&D tax credits relief work
Research and development (R&D) tax relief has helped thousands of businesses since it was introduced in 
the UK more than 18 years ago, with almost £3bn claimed in 2016 alone. The tech industry has innovation at 
its heart, which puts it in prime position to benefit from these generous tax breaks. Yet, too few companies 
are taking advantage of the R&D scheme or they fail to claim their full entitlement. Pioneering tech firms 
could tap into billions of pounds of support available to help them with new developments and to grow their 
enterprises.
HMRC asks that a business can demonstrate it 
is seeking a technological advance in an area of 
science and technology, and in doing so is tackling 
an area of technological uncertainty. Put simply, if 
a company is developing a new process, platform 
or piece of software, then that project is probably 
eligible.
A common misconception many tech firms make 
is that R&D relief only applies to the development 
of a new pharmaceutical or the design of an engine 
component. In fact, the scheme covers a vast 
range of products, services, or business processes, 
with much of the work being done in Britain’s tech 
firms qualifying for the relief. 
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The Essential Guide to Tax Incentives for Fast Growth Businesses
R&D relief only applies to businesses liable for corporation tax, so sole traders 
do not qualify. There are two types of relief available:
Types of R&D relief
Small and medium-sized 
enterprises (SME) 
R&D relief
Broadly if a business has less than 500 staff 
and a turnover below €100m or a balance 
sheet total under €86m it qualifies for SME 
R&D relief.
•  SMEs can receive 230% relief on qualifying 
R&D costs.
•  If the business is loss-making, it can claim 
a 14.5% tax credit on surrendering losses 
created by the qualifying R&D activity.
• This means the value of making a claim 
can be as much as 33% of the qualifying 
expenditure.
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2 Research and 
Development Expenditure 
Credit (RDEC)
Large companies exceeding SME thresholds 
can claim RDEC for R&D projects, a tax 
credit of 12% (11% prior to 1 January 2018) 
of qualifying expenditure. Crucially for many 
tech firms who are subcontracted by large 
businesses, they may be able to claim under 
the RDEC scheme. 
Page 13
The Essential Guide to Tax Incentives for Fast Growth Businesses
• The cost of employment is often the largest 
element of a claim. Many young tech businesses 
are loss-making, and the cost of employing 
staff is often the biggest expense. Assessing 
which people have been involved in a project and 
how much of their time was spent on it is a key 
component of making a claim. 
• The cost of hiring external workers may also 
qualify if they worked on R&D. A proportion of 
subcontractors’ pay could be claimed back.
• Consumable items - materials or equipment 
used in the R&D process, such as software 
licence costs – could also increase a claim.
What qualifies for R&D 
tax relief
What costs qualify 
for R&D tax credits
• How has a project looked for an advance 
in science and technology? This may be 
by developing something new in a sector, 
improving upon what already exists, or devising 
a product, service or process to give the 
business a competitive edge in an innovative 
way.
• The project(s) need to tackle areas of 
technological uncertainty. This means 
demonstrating to HMRC there has been an 
attempt to devise a solution to an issue or 
problem where no known solution exists.
• Businesses must show their efforts create 
an advance in the overall field and not just for 
that individual enterprise. A company using 
an existing technology for the first time in its 
sector would be ineligible, for example.
• 
The project does not need to be a success, 
it is the time and effort that counts. Equally, 
if the work is overtaken by new advances 
– a common occurrence in the tech world – 
R&D help could be available if the project was 
genuinely innovative at the time of development. 
• Two companies could be developing the same 
thing at the same time and both qualify for R&D 
relief, as long as each project was developing a 
new piece of technology which was not readily 
available in the market.    
Firstly, a business must identify which of 
its projects is eligible. 
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The Essential Guide to Tax Incentives for Fast Growth Businesses
What businesses can 
get wrong
The most common mistake is simply failing to 
realise a project qualifies for R&D tax relief. Other 
businesses want to avoid dealing with HMRC or 
resent the perceived time and resources involved. 
These entrepreneurs often have no idea the tax 
credit can be worth as much as a third of the 
expenditure on qualifying projects. 
Much of the work done by tech firms is eligible for 
R&D support, whether it is creating a new digital 
platform, improving hardware, or developing software 
to help existing systems work together. R&D credits 
are not just valuable to new, loss-making businesses, 
Businesses often make specific errors 
when approaching R&D: 
• Once an R&D claim has been submitted, some 
companies copy the same details the following 
year. HMRC will reject such a claim since 
there must be evidence of ongoing project 
development. 
• Grant funding can clash with an R&D claim. 
Specifically grants which qualify as notified EU 
state aid, as does the SME R&D relief scheme. 
This can shift R&D into the RDEC scheme, 
which has a big impact on the tax credit’s 
value. 
• Companies in need of money to undertake R&D 
often fail to realise advance pay-outs may be 
available from providers who will lend on the 
expectation of a successful claim. 
• Many companies ask their bookkeeper for R&D 
advice, but expert guidance is more likely to 
ensure a claim is robust. Some entrepreneurs 
do not know they can make backdated claims 
up to two years from the end of an accounting 
period.
they can help profitable companies, too, by giving 
them a reduction in their corporation tax bills.
The Government and HMRC are rewarding risk-
taking with R&D tax breaks. And both are eager that 
more businesses use the reliefs for reinvestment, 
job creation, and business growth. 
R&D	tax	credits	can	be	a	vital	source	
of working capital for tech businesses.  
Provided qualifying activities are 
undertaken, making a claim can reduce 
a	company’s	corporation	tax	liability	(if	
profitable),	or	even	result	in	a	repayment	
back from HMRC if the company is loss-
making.  The value of this credit can be 
as much as one third of the qualifying 
expenditure	for	SMEs.	
We can help in ensuring that claims made 
are	robust	(and	therefore	minimising	the	
risk	of	HMRC	enquiry),	whilst	ensuring	
that	the	value	of	claims	are	maximised.		
There are certain challenges and pitfalls 
that must be avoided, and therefore 
taking the right advice is critical to 
ensure that businesses do not miss out 
on this valuable relief.
Matt Watts
Partner  |  Smith & Williamson  |  Business Tax  |  020 7131 4790 
Page 15
The Essential Guide to Tax Incentives for Fast Growth Businesses
What is 
Entrepreneurs’ Relief?
Entrepreneurs’ Relief is a popular tax break with 
tech firms, as it typically halves the amount of 
CGT paid on the sale of business assets, typically 
shares in a company. It is applicable to trading 
companies, which makes it popular across all 
sectors. The relief also has the merit of being less 
complicated than EIS or SEIS schemes, with fewer 
conditions attached. 
In fact, Entrepreneurs’ Relief is often used by 
those who, for whatever reason, fail to qualify 
for EIS or SEIS relief. In the tech sphere, it is 
also commonly used to reduce the tax liability 
of employees who have exercised Enterprise 
Management Incentive (EMI) share options. 
Entrepreneurs’ Relief:
Helping you save tax on 
the sale of your business
Entrepreneurs’ Relief reduces CGT on the sale of 
business assets by individuals – not companies 
– from the standard rate of 20% to just 10%. Each 
person has a limit of £10m in lifetime gains to 
utilise the relief, which can be on more than one 
asset. One condition is that any enterprise being 
sold must be a trading company, or the holding 
company of a trading group, rather than being 
engaged in a non-trading activity, such as 
holding or making investments. Most tech firms 
will qualify.
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The Essential Guide to Tax Incentives for Fast Growth Businesses
The first thing to establish is whether a person 
is eligible to make a claim;
How can Entrepreneurs’ Relief be used?
Business owners can introduce spouses or civil partners into their company at least a year ahead of a 
planned sale. The spouses of business owners will be entitled to claim relief if they satisfy all of the 
conditions in respect of shares they own in the company.
A common scenario is a tech entrepreneur selling shares and claiming Entrepreneurs’ Relief when they own 
more than 30% of their company. This would make them ineligible for EIS and SEIS, which are more attractive 
in tax terms since they may carry a zero per cent CGT rate. Others typically claim Entrepreneurs’ Relief if errors 
were made in registering their companies with HMRC as an EIS or SEIS company, which disqualified them 
from claiming the more beneficial tax break. Either way, the tax advantages of Entrepreneurs’ Relief are 
considerable and it is well worth planning for business exits well in advance.
1 
Year
Selling shares
Entrepreneurs’ 
Relief
5%
• Someone disposing of shares in a trading company 
must hold at least 5% of the company’s total 
ordinary share capital and voting rights to qualify 
for Entrepreneurs’ Relief. They must have held those 
shares and those voting rights for at least a year 
immediately before the sale and must have been 
an employee or office holder in the business for a 
minimum of 12 months immediately prior to the sale. 
• 
If a sole trader or business partner is selling all or part 
of their business, they must have owned the business 
or their share of it for at least a year before selling. 
• As an exception, someone selling shares received 
through an EMI scheme can claim Entrepreneurs’ 
Relief even if he or she holds less than five per cent of 
the whole company and/or has not held the shares for 
at least one year prior to the disposal. However, that 
person must have been granted the option to buy the 
EMI shares at least a year before selling the relevant 
shares. 
The date of the disposal of the relevant assets is what 
matters. If shares are being sold today, it is necessary to 
go back 12 months to ensure that the conditions outlined 
above have been met over that period. But with a little 
forward planning it is possible to take full advantage of the 
CGT savings available.
Page 17
The Essential Guide to Tax Incentives for Fast Growth Businesses
Employees with EMI shares
Entrepreneurs’ Relief particularly comes into its own when a tech business has an EMI scheme in place. 
Offering share options has become a popular element of compensation in the digital sector, and EMI schemes 
are the most tax-efficient way to offer equity rewards both for staff and the business. Participating employees 
can minimise their tax exposure by claiming Entrepreneurs’ Relief on the sale of their shares. 
A simple example shows how an employee exercising an EMI option and selling the 
relevant shares might benefit from Entrepreneurs’ Relief: 
£1
An employee is awarded an EMI 
option over shares today with a 
current market value of £5. 
£5
They buy the share at the 
agreed	exercise	price of £1. 
When they sell their shares 
– more than a year after the 
options were granted – they sell 
for £12 each, an £11 difference 
between	the	exercise	price	and	
the price at which the shares 
were sold. 
The employee pays income tax	(and	
possibly	national	insurance)	on	£4 
per share at the time the shares are 
acquired, the difference between 
the £5 the share was worth when 
granted	and	the	£1	exercise	price.	
CGT is paid on the share sale price 
minus	the	exercise	price	paid,	
minus the sum on which income 
tax	was	paid.	
That makes the capital gain £7, 
on which the employee only pays 
10% CGT under the Entrepreneurs’ 
Relief scheme. 
£12
£7
CGT
SHARE
EXERCISE
TOTAL
PRICE
PRICE
SUM
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one-stop-shop of support services to meet the 
personal, financial and business needs of business 
owners, management teams and shareholders at 
all stages of the business lifecycle. 
If you’re an owner-manager, entrepreneur, adviser, or if you 
work with a scale-up business, we’d love to hear from you.
Telephone  |  0808 164 0100
Email  |  techfounders@smithandwilliamson.com
Website  |  smithandwilliamson.com
Twitter  |  @SmithWilliamson
LinkedIn  |  Smith & Williamson
Fergus Caheny  |  Partner  |  Smith & Williamson  |  020 7131 4216
Our Expertise
Events
Diagnostic
Insight
Partnerships
Our Scale-Up Programme
Contact Us
Our tailored networking and 
education events connect 
founders and their management 
teams with investors, experts and 
mentors.
Technical, analytical or 
inspirational, we deliver 
powerful business 
intelligence to scale-ups and 
their leaders.
Our strategic alliance 
network can help you fulfil 
your ambitions. 
Identify your business’s 
strengths and weaknesses 
and receive directions and 
recomendations on practical 
next steps.
We champion the cause of entrepreneurs and 
growth businesses, connecting you with peers and 
networks to help you develop and scale.
Smith	&	Williamson	LLP	Regulated	by	the	Institute	of	Chartered	Accountants	in	England	and	Wales	for	a	range	of	investment	business	activities.	A	member	of	Nexia	
International.
Smith	&	Williamson	Investment	Management	LLP	(SWIM)	Authorised	and	regulated	by	the	Financial	Conduct	Authority.	The	Financial	Conduct	Authority	does	not	regulate	all	
products and services referred to in this publication.
The word partner is used to refer to members of Smith & Williamson LLP and Smith & Williamson Investment Management LLP. 
We	have	taken	great	care	to	ensure	the	accuracy	of	this	publication.	However,	the	publication	is	written	in	general	terms	and	you	are	strongly	recommended	to	seek	specific	
advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this 
publication.
Offices:	London,	Belfast,	Birmingham,	Bristol,	Cheltenham,	Dublin	(City	and	Sandyford),	Glasgow,	Guildford,	Jersey,	Salisbury	and	Southampton.
© Smith & Williamson Holdings Limited 2018. Approval No: 18/552 Expiry date: 31/03/2019