Further guidance on directors’ discretions please
Further guidance on the use of directors’ discretions with particular reference to Enterprise Management Incentives (EMI) is, in RM2’s opinion, long overdue.
One of the biggest attractions of EMI options for private companies is the flexibility they offer. For example, while other tax advantaged employee share schemes have specific rules about how employee leavers should be treated (the concept of a “good” leaver versus a “bad” leaver), the EMI legislation provides much more leeway. This gives the ability for directors to use their discretion in certain matters. Discretion might also be used to flex option exercise conditions in certain scenarios – for example, can some options be exercised early in certain unforeseen situations?
This flexibility and use of director discretion is a real advantage in the fast-moving world of private companies where rapid, commercially driven decisions are essential for a company’s survival and success.
The use of discretion, however, can lead to a certain amount of tension between the often common-sensical flexibility that it provides for EMI companies, versus the possibility for abuse by those who chose to “push the envelope”. Where government-blessed tax advantaged share schemes are involved, it is not unreasonable for private companies to be able to check where the line is, and whether they’re about to cross it. This isn’t a legislative question but an area where formal guidance from HMRC is invaluable, whether in the general form in HMRC’s manuals, or by way of clearance sought from HMRC’s share schemes team for specific cases.
It is understandable, given that the whole of HMRC is overstretched at the present due to the pandemic and pressures on the public purse, that experienced share schemes resources are spread very thinly. However, this has led to the perception that responses from HMRC share schemes advisers have become slightly variable and arguably defensive (of course it is “safer” to turn down a request if you are not sure of the potential ramifications of acceding to the request).
We are sympathetic with the HMRC advisers in question (as most advisers are occasionally prone to taking a defensive stance themselves). However, it strikes RM2 that getting the promised guidance out to wider world would be very helpful in this regard and perhaps reduce the workload created by enthusiastic share scheme practitioners writing in on behalf of their clients (not to mention reducing HMRC’s own workload).
Greater certainty (in settled black & white) wherever the line falls would be greatly appreciated by RM2 and our clients who in the vast majority of cases have absolutely no desire to set the “HMRC hares” running.
RM2 understands that such further guidance might be bouncing around between HMRC and the Treasury Solicitor’s office at present.
As the phrase has it – “publish and be damned!” – we dare you.
For guidance on employee share schemes of all types please contact us at email@example.com where we can arrange an initial call with one of our specialist advisers.