Don’t leave EMI option notifications until the deadline

The move away from the old 92-day notification window for new Enterprise Management Incentive (“EMI”) option grants may have felt like welcome breathing space. But breathing space should not become a reason to wait.

For EMI options granted on or after 6 April 2024, HMRC generally requires notification by 6 July following the end of the tax year in which the grant is made. Missing the relevant deadline can put the intended EMI tax advantages at risk for both the company and option holders. That risk is significant enough in normal trading conditions, but it can become much more acute if a transaction appears unexpectedly.

An exit event can arrive quickly and with little warning: a buyer approaches, heads of terms are signed, “due diligence” processes begin and the timetable compresses. At that point, historic EMI compliance can become a live issue. A buyer, investor or diligence team may ask whether option grants were properly notified, whether the scheme was registered and whether the company has evidence to support the tax treatment employees expect.

Indeed, if the option is being exercised in connection with the sale of the company, a purchaser may well insist that the relevant notification is made prior to exercise/sale. This clearly adds extra stress for the vendors at a time when there is already plenty of stress about!

The same point applies where employees exercise EMI options. If a notification has been left until later, the company may find itself trying to resolve administrative steps at precisely the moment when certainty matters most. This can create avoidable delay, additional adviser time.  It is clearly prudent to notify the grant of the option prior to exercise.

Accordingly, we believe a better approach is to treat notification as part of the grant process, not a year-end housekeeping task.

In short, delaying EMI notification may preserve flexibility on paper, but it can reduce certainty in practice. Where an exit, funding round or option exercise may arise without much notice, early notification helps keep the company transaction-ready and gives employees greater confidence that the EMI benefits they were promised will be available when they matter most.

At RM2, our administration service team can help with any EMI option notifications that are currently outstanding and remove that potential headache.  Drop us a line at enquiries@rm2.co.uk and we can set up a quick call with one of our specialist advisers.