On 04 April 2018, just two days before the changes, HMRC announced that the state aid approval for Enterprise Management Incentive (EMI) share schemes would lapse on 06 April. Therefore, as of 07 April 2018, any new options which have been granted would not qualify for the associated tax advantages.
What is an EMI scheme?
EMI is an incredibly useful share incentive scheme which companies have used to incentivise and reward key employees. Under an EMI scheme, an employer is able to grant an option to employees to buy shares in the company at today’s price, with significant discounts, which may have a higher value when the option is exercised. Usually the option is exercised on sale and, therefore, employees benefit from a substantial return which is taxed at 10% rather than the significantly higher rates of income tax (maximum being 45%) if those funds had been received as a bonus.
The Government has applied for new approval from the European Commission, however, this is yet to be granted. Leaving a period of uncertainty between when the prior approval expired (06 April), until the new approval is granted (presuming the approval will be granted).
How could you be affected?
If your company has granted EMI share options before 06 April 2018 (11pm UK time), then there is no reason to worry, as they still fall under the previous approval date and any associated tax breaks should still be applicable. For those who are currently in the process of setting up a new EMI scheme, we recommend holding off on granting the share options until the position is clarified. Should your company have granted EMI share options during the lapse period, it may have to be dealt with as non-tax advantaged employment-related securities option and, therefore, could have onerous tax consequences.
Lisa Wilson, Head of Tax at Cowgill Holloway commented: “We are astonished by the lack of notice provided by the Government on the lapse of the state aid for EMI. We have a number of clients that have been affected by this and are in a state of suspension until the Government clarify the position. There will be other advisors who will have missed the notification which was released to coincide with holidays and the end of the tax year. Individuals (and tax advisors) rely on understanding the current regime via effective communication from HMRC and the Government. This announcement has fallen well short of what clients should expect.
“This error highlights how quick the UK tax regime can change and, therefore, if clients are considering tax planning our advice is always to get on with it before the environment changes and reliefs are lost.”
For more advice about share schemes and associated tax planning advice, contact Lisa Wilson, Head of Tax at Cowgill Holloway.
Whilst HMRC hasn’t yet confirmed, as of Tuesday 15th May news from the European Commission is that the EC has granted the prolongation of EU State Aid for EMI schemes.
Good news for anyone currently looking to implement an EMI scheme, however, it’s only valid whilst the UK is a member state. Our advice – if you’re considering an EMI scheme, act now as it cannot be guaranteed they’ll still be in play post-Brexit.
This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.