EMI share option

URGENT EMI Share Option Update May 2018

STOP PRESS:  The EU Commission has today (15th May 2018) announced that they have now  granted EU State Aid approval for EMI schemes (the confirmation can be found here in this press release  – fifth paragraph down).

HMRC have still to release a statement relating to this approval but we are now advising all clients that they can make preparations for the grants of EMI share options to their employees (subject to having obtained an HMRC-approved valuation), with a view to making such grants as soon as HMRC have passed comment. We do not recommend granting any options until we have heard from HMRC.  More news shortly.

If you operate an enterprise management incentive (EMI) option plan or are proposing to grant EMI options in the near future, please read this blog carefully together with the Employment Related Securities Bulletin No 27 issued by HMRC on 4th April 2018.

What is an EMI scheme?

Enterprise Management Incentive (EMI) share schemes were introduced in 2000 to help companies seeking to grow their business to attract and retain highly-skilled staff.  It is a tax efficient share option scheme. EMI options can act both as a valuable incentive to attract or recruit new employees and as a means of motivating existing employees.

EMI schemes are popular because they are tax efficient for both the company and the employees. The grant of the option is tax-free.

What changed on 6th April 2018?

Due to the tax advantages and the targeting of the scheme towards particular sectors (only companies carrying on particular trades can qualify), EU State Aid approval is required to ensure the implementation of the EMI scheme is in line with the principles of the Single Market.

On 4th April 2018 HMRC announced at short notice that EU State Aid approval for the EMI scheme would expire on 6th April 2018 with no renewal agreement in place from the EU.

The Government applied to the European Commission for re-approval last year, so this late announcement came as a surprise as renewals have been obtained previously without concern.  With Brexit looming we have to consider our interaction with the EU with fresh eyes and assume nothing.

How does this impact EMI options granted before the 6th April deadline?

You will be relieved to hear that the tax advantages for EMI options granted before the deadline on 6th April, and on disposals of shares acquired under them, will not be affected by this.

Be aware if you are considering a new grant of EMI options post the 6th April deadline

Companies considering a new grant of options from 7th April, however, do need to take care as currently, they may not be eligible for the tax advantages presently afforded to existing EMI option holders. HMRC have advised that companies may wish to consider delaying the grant of options intended to qualify as EMI share options until fresh EU State Aid approval is given, and that advice is sought before taking any action during this period of uncertainty.

What are the next steps?

The temporary lapse of approval and the short notice is unsatisfactory.  Although HMRC is confident of the renewal being awarded we currently do not have any guidance on how long this period of uncertainty will remain; although Employment Related Securities Bulletin No 27 issued by HMRC states that the government is working hard to ensure this period is as short as possible.

We will update Isosceles Insights as soon as we get further information.

So, to confirm …..

  • Qualifying options granted before 6th April 2018 will still be eligible for EMI tax benefits, subject to the usual rules and regulations applicable to EMI options;
  • HMRC do not intend this to be the end of EMI options;
  • Options granted from 7th April 2018 until the date of the new approval may not qualify for EMI tax-advantages;
  • There is no guarantee that when/if EU State Aid is granted that it will be backdated to 7th April 2018

If you would like to discuss any of the issues raised, please do get in touch.