This alert is only relevant to tax-favoured Enterprise Management Incentive Options (EMI options). If your Company only grants non-tax favoured options to UK employees, you do not need to read any further.

Details of restrictions over shares should now be set out in EMI option agreements due to a change in HMRC guidance. Options issued before 17 August 2016 are unaffected by this update.


The EMI legislation states that the EMI option agreement must contain details of restrictions on the shares if the shares are restricted. HMRC has accepted for many years that it was sufficient to state within the EMI option agreement that the shares were subject to any restrictions in the articles of association from time to time.

However, HMRC has reviewed this position and has decided that this approach is no longer acceptable and that the employee must be made aware of all restrictions and conditions on the shares, by being summarised and incorporated into the EMI option agreement. If this has not been done HMRC will take into consideration any evidence that the restrictions have been otherwise brought to a Participant’s attention in a meaningful way at or near the date of option grant.

Types of restrictions include but are not limited to compulsory transfer provisions, any restrictions on the transfer of shares, pre-emption rights and drag-along provisions.

Next steps

We would recommend that all future EMI option grants should include wording in the EMI option agreement setting out details of any restrictions or conditions over the shares.

If EMI options were granted after 17 August 2016 and details of the restrictions on the shares were not in the EMI option agreement provided to the employee then we would suggest that a letter be sent to the employees setting out such details.