European Union: Is It The End Of The Road For EMI?

Enterprise Management Incentive (EMI) options are widely granted to employees in small and medium sized companies - the tax advantages they offer employees are the most generous of all the tax-advantaged share plans that are available.

However, doubt has recently been cast on their on-going benefit. EMI tax relief relies on EU State Aid approval, which expired on 6th April 2018. HM Revenue & Customs (HMRC) issued a bulletin on 4th April 2018 which stated that "HMRC considers that the State Aid approval applies to the granting of share options and therefore that share options granted up to and including 6th April 2018 won't be affected by this lapse of approval."

The HMRC bulletin can be found here:

But what does this all really mean?

What about EMI options that are outstanding as at 6th April 2018?

HMRC seems to be giving comfort that pre-6th April 2018 options won't be affected by the removal of State Aid. This is a welcome reassurance.

What about EMI options that are granted after 6th April 2018 but before State Aid approval is renewed?

The position is more uncertain as to the tax treatment of options granted during the period beginning 7th April 2018 until such time as EU State Aid is renewed, if indeed it is. HMRC indicates in its bulletin that any options granted in this interim period "may not be eligible" for EMI tax reliefs and may therefore be treated as non-tax advantaged options. This would mean income tax, and possibly national insurance contributions, would be payable on exercise.

However, it cannot be ignored that the UK tax legislation still provides for tax relief to be given to EMI options in certain specified circumstances.

HMRC has indicated in the bulletin that it will provide a further update in due course. In the meantime, unless there is a pressing reason to do so, our advice is that companies should not grant any more EMI options until the position is clearer.

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.