Enterprise Management Incentive ("EMI") Plans are the most widely used tax-advantaged incentive arrangements offered by HMRC. However the ability for HMRC to offer them is subject to EU State Aid approval, such approval needing to be renewed. The current renewal period expired on 6 April 2018.
HMRC has announced that the EU Commission has failed to give its decision on the latest renewal application. There is no suggestion that approval will not be given but because of the various other issues the EU is currently considering, it has not met the required timetable.
What does this mean?
HMRC has stated that this lapse of approval does not affect EMI options granted up to and including 6 April 2018. Therefore those options will maintain their tax-advantaged status.
However, for EMI options granted in the period from 7 April 2018 until EU State Aid approval is received, those options may not be eligible for the current EMI tax advantages. Any EMI options granted during this period may be treated as non-tax advantaged options i.e. subject to income tax and national insurance contributions (both employee and employer) on exercise.
What should companies do?
Companies should consider delaying the grant of EMI options until fresh approval has been given. There has been no indication of when approval is likely to be given, but unless there are pressing commercial considerations, it would be sensible to hold off granting new options to ensure the tax advantages are preserved. Companies may also want to consider alternatives such as growth share or Company Share Option Plans (another type of HMRC tax-advantaged option).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
