On 4 April 2018 HMRC published a bulletin which is an important update for companies which operate enterprise management incentive (“EMI”) option plans, especially those companies which are proposing to grant EMI options in the near future.
By way of background, the EMI tax regime is subject to the EU State Aid approval rules. In spring 2017 the Government confirmed that it would seek such State Aid approval to extend the EMI tax relief beyond 2018 and, since last year, it has been following the process of applying to the European Commission for fresh approval. However, the Commission’s final response is awaited and was not received before the EU State Aid approval for the EMI regime expired on 6 April 2018.
For Companies proposing to grant EMI options: be aware
Companies which are proposing to grant EMI options (either as new options or fresh options under existing schemes) need to be aware that there will be a period between the lapse of the approval on 6 April 2018 and a decision by the EU Commission on a fresh approval.
Therefore EMI share options granted in the period from 7 April 2018 until EU State Aid approval is received may not be eligible for tax advantages. The Bulletin states that:
- options granted in that period as EMI options “may necessarily fall to be treated as non-tax advantaged employment-related securities options” (this means that they would be subject to income tax and typically also employer’s and employee’s national insurance contributions on exercise);
- companies may wish to consider delaying the grant of options intended to qualify as EMI share options until fresh EU State Aid approval has been given; and
- a further update will be provided by HMRC in due course.
For EMI options already granted
HMRC considers that the State Aid approval applies to the grant of share options, and therefore that EMI options granted up to and including 6 April 2018 will not be affected by this lapse of the approval.
Therefore there is no immediate action required, but Companies looking to grant new options should wait, if possible, for EU sanction to be obtained before doing so if they wish to take advantage of the significant tax advantages previously attaching to EMI Options.
If you have any queries on EMI options please do get in touch.