The Budget contained several positive announcements relating to the Enterprise Management Incentives (EMI) scheme which will be most welcome by small and medium sized businesses looking for a cost effective, tax efficient method of recruiting, retaining and incentivising key employees.
The Chancellor announced that the maximum value of shares over which an individual employee may be granted EMI options will be more than doubled, rising from £120,000 to £250,000. This change is subject to State Aid approval and will be implemented by statutory instrument as soon as that approval has been obtained.
The Chancellor also announced that (again subject to State Aid approval) the Finance Bill 2013 will contain provisions to extend the application of capital gains tax entrepreneurs' relief to gains arising on the disposal of shares which are acquired through the exercise of an EMI option on or after 6 April 2012, ensuring an effective capital gains tax of 10% on the disposal of such shares. At the present time we do not have any detail on how the proposed extension of entrepreneurs' relief will operate, but those with EMI options which are due for exercise in the next few weeks may wish to consider whether it is possible to delay the exercise of the options until 6 April 2012 in order to potentially benefit from entrepreneurs' relief and the lower capital gains tax rate of 10%.
It was also announced that the Government will consult on the possibility of extending the EMI scheme to academics employed by qualifying companies. This is most likely to be achieved by reducing or waiving the amount of time which an employee must spend working for the company in order to be eligible to participate in an EMI scheme. Finally, the Chancellor announced that HM Revenue & Customs will develop guidance and resources with the aim of assisting participation in EMI schemes by small start-up companies. It is anticipated that the new resources will be available by the end of 2012.
The above changes are welcome news to companies looking for a tax efficient way to incentivise employees. We shall issue further e-updates when we have more information on how and when the proposed changes are to be implemented.