What is the impact on EMI schemes in view of the recent State Aid announcement?
9th April 2018 by Andrew Scott
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.
Providing the qualifying conditions are met by the company and the employee, EMI schemes enable an employer to grant an option to an employee to buy shares in their employer’s company at today’s price, which may have a higher value when the option is exercised, tax free.
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 4 April 2018, HM Revenue & Customs (HMRC) released a statement stating that EU State Aid approval for EMI schemes expired on 6 April 2018. The Government is seeking to renew this at the earliest opportunity but is awaiting a final response from the European Commission.
What this means is that for any EMI share options granted after 6 April 2018 (11pm UK time), there will be no guarantee of any tax advantages until the European Commission confirms their final approval for EMI schemes in respect of the State Aid rules.
In the meantime, any legal documentation can still be drafted and valuations can still be agreed with HMRC, but it is advisable that employees should hold off signing any EMI Options Deeds dated on or after this date so that they are not formally granted, until the final approval has been given by the European Commission.
In the event EU State Aid approval is not confirmed, any EMI share options granted after 6 April 2018 may fall to be treated as non-tax advantaged employment-related securities’ options.
Any EMI share options granted up to 6 April 2018 (11pm UK time) are not affected.
It is disappointing how late in the day HMRC has released this statement and also that the Government has not been proactive enough in starting the process of renewing the State Aid approval for EMI schemes earlier.
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