HMRC publish guidance on exercise of discretion in relation to EMI options

HMRC have recently updated the Enterprise Management Incentive “EMI” section of its Employee Tax Advantaged Share Scheme User Manual in relation to the exercise of director discretion with regards to EMI options.  The update is most welcome, given our view that it was needed back in February 2022.  It must be noted, however, that HMRC state that this update is not a change in position, so it should be taken as rather more a clarification (hopefully) of such.

One of the biggest attractions of EMI options is the flexibility they offer, including in relation to the directors exercising discretion to determine various outcomes in relation to how an EMI option is treated in various situations.  However, the directors are not able to do just what they want to in this respect, they need to exercise caution when exercising such discretion as if they push things too far then it could have serious consequences for the option holder and the company. 

The updated guidance is too detailed to review fully in this short blog (see here for the full details), but it does set out the general principles that HMRC will apply when considering the use of discretion:

  • Any exercise of discretion in relation to when the EMI option is exercisable is only acceptable if it does not bring forward the date when the option becomes exercisable.
  • Performance conditions can be varied or waived after grant as long as the discretion exercised in appropriate circumstances is done on a fair and reasonable basis.
  • A complete discretion to choose when, and the extent to which an option is exercisable is not acceptable – HMRC state that: discretion that allows for the option to be exercised at any time the board so wishes or where there are specified terms of exercise in the option agreement from the outset, but the board may allow exercise at any other time or in any other circumstances, would not be acceptable.
  • Discretion cannot be added to an EMI plan or agreement after grant.

The guidance also distinguishes between types of EMI plans, i.e. exercise on specified event (e.g. exit-only or cessation of employment), and time-based plans.  It appears that exercising discretion in relation to specified events could be less problematic than in relation to time-based plans, but clear drafting is required in any event from the outset to make it clear when discretion can be exercised, such as in “good leaver” circumstances.

It will be interesting to see whether the updated guidance provides the clarification of this area that was needed for companies and advisers alike – only time will tell, but we recommend any exercise of discretion is still approached with caution for the time being.

If you would like to speak to us regarding the exercise of discretion on your EMI share options drop us a line at and we can arrange for you to speak with one of our specialist advisers.