Finance (No.2) Bill - What will it mean for EMI plans?
The Finance (no.2) Bill received Royal Assent on the 16th December 2010 and has an impact on the operation of Enterprise Management Incentives (EMI).
The Finance (no.2) Bill is one fairly described by the phrase all encompassing, covering aspects from Corporation Tax to Asbestos Relief. However, there is also a notable update to the qualifying criteria for EMIs.
The principal change to the legislation provided by the Finance (No.2) Bill is that the requirement on trading activities would have an addition to Sch 5 Para 14 there will be sub-paragraph 14A of which the most relevant addition is the requirement that:
- 14A (1) The UK permanent establishment is met if condition A or B is met.
- (2) Condition A is that the Company has a permanent establishment in the United Kingdom.
This new requirement that a company should have a permanent establishment in the UK is designed to remove the previous need for trading activities definition and instead use the definition of permanent establishment is laid out in the Finance Act 2003 Part 7 Section148 which states that a company has a permanent establishment in a territory if (a) it has a fixed place of business through which the business of the company is wholly or partly carried on, or (b) an agent acting on behalf of the company has and habitually exercises their authority to do business on behalf of the company.
Before the 16th December 2010, the criteria for a company to qualify for an EMI were as follows:
- Independence: A company wishing to operate an EMI scheme must not be a 51% subsidiary or controlled by another company.
- Having only qualified subsidiaries: the company in which shares for the EMI are to be granted must have at least 75% of the share capital and voting right in the subsidiary company
- Gross Assets: The value of the company's gross assets must not exceed 30 million at the date the EMI option is granted.
- Number of Employees: There is a requirement that the company should have no more than 250 full-time employees at the date of the grant of the EMI option. A full-time employee is defined as someone who works for either 25 hours a week minimum for the company or who spends at least 75% of their working time working for the company.
- Trading Activities: A qualifying trade is one which occurs wholly, or mainly in the UK on a commercial, profit making basis, and which does not include excluded trading activities (for details of what these are please refer to www.hmrc.gov.uk/shareschemes).
It seems likely therefore that this change to the legislation will allow companies who were previously ineligible for an EMI to qualify providing they have a permanent office based in the UK. It is certainly a step in the right direction as far as making schemes more accessible to a wider range of companies, but only time will tell whether the change will make any material difference to companies participating in EMIs.
For more information relating to the changes to EMI scheme rules please call us on 020 8949 5522 and speak to any of one of our advisors.