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EMI share options – companies beware

Article posted: 11th April 2018

Companies that grant Enterprise Management Incentive (EMI) share options, should be aware of an important HMRC bulletin issued on 4 April 2018, which impacts any share options granted from 7 April 2018.

The HMRC bulletin ‘Employment related securities bulletin No 27’ stated that EU state aid approval for EMI share schemes would expire on 6 April 2018 because no formal renewal had been agreed with the European Union.

As a result, any EMI share options granted in the period from 7 April 2018 until state aid approval is received may therefore not be eligible for tax advantages. Instead, they may be treated as non-tax advantaged employment-related securities. The effect of this could be to convert any subsequent uplift in value from being subject to capital gains tax, which under the EMI share scheme could be taxed at 10%, into income which could be subject to tax rates of up to 47% (45% income tax and 2% employees’ NIC) and with an additional employer cost of 13.8% employer’s NIC.

If there is any silver lining here it is that HMRC considers tax relief for share options granted up to and including 6 April 2018 are not affected by the lapse in the EU state aid approval, which will be welcome news for companies that managed to approve their options before the start of the new tax year.

The key issues at a glance

  • HMRC has not offered any guarantees that subsequent tax relief would be backdated to 7 April 2018.
  • There is no indication as to the timescale for the renewal. Will Brexit negotiations have an impact?
  • If companies delay granting options, HMRC agreed valuations will expire, which may lead to updated company valuations being required.
  • Where the company share price increases during the delay in getting state aid approval, employees may suffer either from an increased exercise price or increased tax liabilities upon exercise.
  • Any new approval may impose requirements for EMI options granted under that approval or apply additional eligibility criteria.

What do I need to do?

Currently, HMRC is advising that companies may wish to consider delaying the grant of EMI share options until fresh EU State Aid approval has been given.

If you would like to discuss how this ‘moratorium’ affects you or your business, please contact Masum Ahmed or Adam Hills in our personal tax team.

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