Your firm has been asked to provide advice to Pita plc in respect of the establishment of an enterprise management incentive scheme.

Pita plc:
– Is a UK resident company which trades in the UK and is quoted on the UK Stock Exchange.
– Has an issued share capital of 10,000,000 irredeemable £1 ordinary shares.
– Has gross assets of £24,000,000 and 180 employees.

Issues – Pita plc:
– Intends to establish an enterprise management incentive (EMI) scheme for nine key employees.

The EMI scheme:
– The scheme would reward seven full-time and two part-time key employees.
– Each key employee will be granted an option to acquire 10,000 shares at £1·75 per share.
– The options will be exercised in six years’ time when the shares are expected to be worth £5 each.
– An ordinary share in Pita plc is expected to be worth £2 when the options are granted.

Required:
(b) (ii) On the assumption that an EMI scheme is established, explain the income tax and capital gains tax implications for the employees in respect of the grant and exercise of the options and the sale of the shares, including the availability of entrepreneurs’ relief. (5 marks)