Whoops! I broke my EMI options……

Share plans annual return season is upon us.  RM2 is in the midst of preparing approximately 150 share plan returns for our clients for EMI, SIP, CSOP, SAYE and “Other” (the category that covers all non tax advantaged share plan arrangements such as Growth Shares or Deferred Share Purchase Plans). 

Generally the returns are straightforward, if you have good administrators to keep on top of your records, but every now and then questions arise, especially in respect of EMI options.  It is frighteningly easy for companies to disqualify themselves or their employees from the benefits of EMI options, or at least make it impossible to grant new EMI options in the future.  Here are a few examples of everyday corporate events that can inadvertently “break” your EMI:

  • A controlling shareholder transferring his or her shares to a corporate body – sometimes done for legitimate tax planning purposes.  The EMI company is now under the control of another company, so it no longer meets the EMI independence test. 
  • An EMI option holder changing their working hours including, potentially, going on sabbatical or another period of unpaid leave.  This may mean that they no longer meet the working time requirements to benefit under EMI. 
  • Making changes to the company’s articles of association or share capital.  If such changes mean that the shares over which options are granted increase in value, this can also disqualify your EMI.
  • Entering into a joint venture with another company. This won’t disqualify your EMI, but it means that the company won’t qualify for EMI in the future.

If you have any kind of share plan in place, always check with your advisers when you’re changing your share capital or share ownership structure and ask if the proposed changes will impact on the scheme.   Similarly, if your employees’ employment status changes, always make sure whether this will result in their options lapsing or becoming disqualified.  Usually, these events can be managed perfectly adequately – but it’s much easier to do this in advance rather than discovering, too late, that your EMI plan no longer delivers the tax benefits that you and your employees were expecting. 

RM2 can assist with all aspects of managing your employee share plans, including administering your share plan returns.  For a free consultation contact on 0208 949 5522 or email