Enterprise Management Incentive (EMI) share option schemes allow certain companies to grant tax-advantaged share options to their key employees. They were first introduced in 2000 and have proved popular with many SMEs as a way of recruiting or retaining senior employees. The schemes incentivise them to grow the business and enable them to participate if it is ultimately sold, in a tax-efficient way.
On 4 April 2018 HMRC announced that EMI share options granted after 6 April 2018 may no longer qualify for the tax advantages. This is because the state aid approval for the scheme issued by the EU Commission expired on 6 April 2018. It was probably the first time that many of us were aware that the scheme even qualified as state aid.
The announcement stated that an application had been made to renew the state aid approval, though it had not yet been forthcoming. It transpires that the application was made as late as December 2017. As the original approval took two years from application to receipt of approval, it looks wildly optimistic to expect the new approval to be received before the original approval expired.
What does this mean for businesses?
As I was in the process of advising on a number of new EMI share option schemes, which would have been affected by this announcement and potentially put on hold, I decided to investigate further.
My conclusion was that, at best, there was no legal basis for HMRC’s statement that EMI share option schemes granted after 6 April 2018 may not qualify for the tax advantages and, at worst, only the limited tax advantages conferred on employers, but not those conferred on employees, are at risk.
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