Tax relief for EMI share options put in question

23 / 04 / 2018

On 4 April 2018 HM Revenue & Customs (HMRC) announced that existing EU State Aid approval for the tax-advantaged share option known as Enterprise Management Incentive (EMI) would expire on 6 April 2018.

HMRC at some stage during 2017 commenced the process of refreshing the State Aid approval process with the EU Commission, but there will be a period between 6 April 2018 and that approval being forthcoming (assuming, of course, that approval is granted). HMRC cannot guarantee that EMI options granted during the period will qualify as EMI options even though UK law will not change. Depending on the outcome of deliberations with the EU Commission, ‘EMI options’ granted after 6 April 2018 may end up being classed as unapproved share options, which attract a much less favourable tax treatment.

With that in mind, HMRC suggest that no EMI options are granted after 6 April 2018 until such time as the EU Commission gives State Aid approval as the precise terms of the approval are unclear and may require a change to be made to UK law.

It is unfortunate that UK businesses are faced with a period within which it would be imprudent to grant EMI options. The EMI legislation was introduced in 2000 to provide assistance to smaller businesses in recruiting the talent they need to allow the business to grow and evolve, typically during the start-up phase. EMI, if properly implemented, should mean that future capital growth is subject to CGT rates, which are appreciably lower than income tax rates.