Enterprise Management Incentive
Schemes put on Hold
The Enterprise Management Incentive (“EMI”) is a share scheme approved by HM Revenue & Customs (HMRC) with beneficial tax advantages which can be used to incentivise and retain key employees where certain conditions are met.
However, it was recently announced by HMRC that EU State Aid approval for the EMI scheme would expire on the 6 April 2018 and no renewal agreement had yet been obtained from the EU. As a result any EMI share options granted from 7 April 2018 until EU State Aid approval is received may not qualify for the tax advantages previously available under the share scheme.
The EMI share scheme allows qualifying companies to grant share options to employees so they can acquire shares, at a fixed price in the future, in a tax efficient manner. There are a number of benefits of EMI which include the relaxation of some of the requirements for Entrepreneurs Relief to apply, so that a 10% rate of Capital Gains Tax is more likely to apply to a gain on sale of the shares by the employee, and the company itself may be entitled to Corporation Tax relief if the shares are acquired at below market value.
The government applied to the European Commission for fresh approval for the EMI scheme last year, but no renewal agreement has yet been obtained from the EU. As a result, HMRC issued a bulletin update stating that the EU State Aid approval for the EMI scheme would expire on 6 April 2018, and that there will be a period between the lapse of the existing approval on 6 April and a decision by the EU Commission on a fresh approval which could affect the granting of share options.
EMI options granted up to and including 6 April 2018 will not be affected by the lapse of the EU State Aid approval according to HMRC. Options which have been validly granted under an EMI scheme on or before 6 April 2018 will continue to be eligible for the benefits previously available under the scheme.
However, HMRC has warned that EMI share options granted in the period from 7 April 2018 until EU State Aid approval is received may not be eligible for the tax advantages presently afforded to option holders, and accordingly share options granted in that period as EMI share options may instead be treated as non-tax advantaged employment-related securities options.
Whilst at present there is no reason to believe that an agreement for EU State Aid approval will not be renewed, companies considering the granting of employee share options intended to qualify as EMI share options may wish to delay the granting of such options until fresh EU State Aid approval has been given.
If you have any questions regarding the granting of EMI share options, or if you are considering such a scheme in the present period of uncertainty please contact our Tax Director, Jenny Marks, for more information.
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