Our recent incentives Insight contained an important update for companies operating enterprise management incentive (EMI) share option plans.

We are pleased to confirm that the European Commission has now approved the renewal of EU State aid approval for the EMI regime. EMI options therefore continue to be available as a valuable incentive arrangement which offers significant tax advantages for qualifying companies and their employees.

As set out in our previous Insight, on 4 April 2018 HMRC published an important Employment Related Securities Bulletin. The Bulletin informed companies and advisers that:

  • the previous approval issued by the European Commission for the EMI regime was going to expire on 6 April 2018;
  • there would be a period between the lapse of the existing approval on 6 April 2018 and a decision by the European Commission on a fresh approval. This meant that EMI options granted in the period from 7 April 2018 until EU State Aid approval was received may not be eligible for EMI tax advantages – there was a risk that they may instead be treated as non-tax advantaged options (subject to income tax and typically employer’s and employee’s national insurance contributions on exercise); and
  • companies may wish to consider delaying the grant of options intended to qualify for EMI until fresh EU State Aid approval had been given.

On 15 May 2018, the European Commission announced that it has approved the prolongation of EMI under EU State aid rules, noting that “the prolongation of the measure is necessary to help UK SMEs attract and retain talented and skilled personnel“.

This is clearly good news for companies operating EMI plans (or companies that were considering the grant of EMI options prior to HMRC’s announcement).

Companies can therefore now proceed with any proposed grants of EMI options that they had postponed in the light of the information contained in the Bulletin, or consider what action (if any) should be taken regarding any grants made during the period from 7 April to the date of the European Commission’s decision.

As a tax-advantaged arrangement, it remains important to check that the company and proposed option holders qualify for EMI treatment and that the option documentation is carefully drafted. HMRC must be notified of the grant of the EMI options within 92 days of the date of grant and annual returns filed under HMRC’s Employment Related Securities service (by 6 July following the end of the relevant UK tax year).

The European Commission’s announcement states that (without prejudice to any provisions of the Withdrawal Agreement, which is currently under negotiation) its decision only applies until the UK ceases to be a Member State. This is logical, as it will no longer be necessary to obtain EU State aid approval for the continuation of the EMI regime after such time.

Further information will be published on the Commission’s competition website, and we await a further update from HMRC (likely to be published in a further Employment Related Securities Bulletin).