On 4 April 2018 HMRC published Employment Related Securities Bulletin No 27. This Bulletin is an important update for companies which operate enterprise management incentive (“EMI”) option plans, particularly those companies which are proposing to grant EMI options in the near future.
By way of background, the EMI tax regime is subject to the EU State Aid approval rules. At Spring Budget 2017 the government confirmed that it would seek State Aid approval to extend the provision of EMI tax relief beyond 2018.
The Bulletin confirms that the government has, since last year, been following the process of applying to the European Commission for fresh approval. However, the Commission’s final response is awaited and will not be received before the EU State Aid approval for the EMI regime expires on 6 April 2018.
Companies proposing to grant EMI options: be aware
Companies which are proposing to grant EMI options need to be aware that there will be a period between the lapse of the existing approval on 6 April 2018 and a decision by the EU Commission on a fresh approval.
EMI share options granted in the period from 7 April 2018 until EU State Aid approval is received may not be eligible for tax advantages. The Bulletin states that:
- options granted in that period as EMI options “may necessarily fall to be treated as non-tax advantaged employment-related securities options” (this means that they would be subject to income tax and typically also employer’s and employee’s national insurance contributions on exercise);
- companies may wish to consider delaying the grant of options intended to qualify as EMI share options until fresh EU State Aid approval has been given; and
- a further update will be provided by HMRC in due course.
EMI options already granted
HMRC considers that the State Aid approval applies to the grant of share options, and therefore that EMI options granted up to and including 6 April 2018 will not be affected by this lapse of the approval.
Clearly the temporary lapse of approval and short notice given to companies is an unsatisfactory state of affairs and we currently do not have any guidance on how long this period of uncertainty will remain. However, the Bulletin states that the government is working hard to ensure this period is as short as possible.