An announcement by the UK Government on 20 August 2009 has revealed two notable developments in relation to Enterprise Management Incentive (EMI) options. EMI options are the most favourable of the four tax-beneficial share incentive plans in the UK, and are aimed at helping small to medium sized companies (SMEs) to recruit highly skilled employees. Unlike standard “unapproved” options, EMI options are generally based on a capital rather than an income basis, resulting in significantly lower tax rates - i.e. 18% rather than up to 50% (from 2010). This treatment is the same as that given to “approved” options, but EMI options are subject to more generous value limits than approved options - EMI options can be granted over shares worth up to £120,000 for each individual at grant, whereas the equivalent limit on approved options is £30,000.

However, due to restrictive pre-conditions governing eligibility, EMI options have historically only been available to certain companies which operate wholly or mainly within the UK. This is expected to change on 6 April 2010, after which any eligible company with a permanent establishment in the UK will be able to benefit from the EMI legislation to assist it with recruiting UK-based staff, even if the company’s operations are international in nature.

The Government does not propose to change the other corporate eligibility requirements and so EMI options will continue to be available only to companies which are independent and have group gross assets of not more than £30 million and fewer than 250 full time employees or part-time equivalents.

On a related point, the European Commission has given state aid clearance to the EMI options regime until April 2018. This follows the imposition by the European Commission of various restrictions on the EMI options regime aimed at increasing the compatibility of the scheme with the goals of a common market.

These developments are good news for EU and international SMEs with a permanent establishment in the UK. The proposed relaxation of the rules would enable a broader number of companies to access the EMI options regime and to benefit from its generous tax advantages, and the European Commission state aid clearance will provide certainty for the continuance of the regime.