EMI tax advantages and EU state aid withdrawal
There’s been plenty of noise in the last week or so about the fact that EU state aid permission relating to Enterprise Management Incentive ("EMI") options has not been renewed.
If you assume the worst, this means that any EMI options granted after 11.00pm on Friday 6 April 2018 will not qualify for the tax advantages usually associated with EMI.
At RM2, we’re working on the basis that this is more of an administrative error than anything more sinister involving the doing away with one of the most popular and tax advantaged employee share schemes. Reading between the lines of HMRC’s responses to our enquiries, one suspects that this is more down to someone in the Treasury than HMRC’s beleaguered new share schemes team – certainly, the share schemes team’s slightly curt response is to contact the Treasury team rather than themselves with any questions about the state aid renewal process. HMRC also suggest that you carry on registering EMI options, whether or not made after 6 April 2018, in the usual way.
Cautious advice is to wait till the state aid approval is reinstated before making new EMI option grants, and word on the street is that this will probably be within weeks, rather than months.
However, there’s no guarantee of this. Share option awards to employees are about much more than tax relief; they are about employee incentive, engagement and reward, so if you’ve got your valuation agreed with HMRC and a group of employees champing at the bit waiting for their long promised EMI options – or if there are other good commercial reasons why you’d rather not wait for an uncertain time period before making the grants – it may well be worth while going ahead and granting your EMI options anyway. In the worst case scenario (e.g. if state aid is not renewed at all) you have at least got some options granted at a previously agreed market value. Mid-case scenario – the permission is renewed but there is a period when options didn’t qualify, in which case you can arrange for employees to renounce their options and regrant under EMI.
Looking on the bright side, permission will be renewed and backdated to 6 April 2018, and all will be well.
Call us if you’ve got any questions about your EMI options or any other employee share scheme queries: 0208 949 5522, or email us firstname.lastname@example.org.