News added on 06.04.2018

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EMI

EMI EU State Aid approval expires today

HMRC has confirmed that EU State Aid approval for the Enterprise Management Incentive (EMI) share scheme expires today (April 6) and has not yet been renewed by the European Commission. Are options granted in the meantime eligible for tax advantages?

What are we waiting for? EMI options are unique as they involve the provision of EU State Aid because the scheme is restricted to companies with specific business activities. HMRC has issued a bulletin warning those involved in the establishment of EMI schemes and the grant of EMI share options that there will be a period between the lapse of approval today and the decision by the European Commission on a final approval. The government is currently awaiting the Commission’s final response, despite having started the approval process last year.

What are the tax advantages associated with EMI share schemes? The tax savings are significant for both employers and their employees. EMI share option holders can potentially exercise their options without paying income tax and NI (however if the shares are held long enough to generate a gain, there could be capital gains tax to pay at the point of sale). Companies can also enjoy a corporation tax deduction on the gain at the date of exercise.

Who could be affected? It is clear that there is some uncertainty surrounding the treatment of options granted from 7 April 2018. The good news is that share options granted on or before 6 April 2018 won’t be affected by the lapse of approval. However, there is a possibility that EMI share options granted during the waiting period may not be eligible for the tax advantages usually afforded to EMI share option holders. Options granted during this time could be treated as non-tax advantaged employment-related securities options, attracting income tax and NI at exercise. 

What can employers do? HMRC is suggesting that companies delay the grant of employee share options intended to qualify as EMI share options until fresh EU State Aid approval has been given. No estimated timeframe has been provided but it is hoped that it will be granted swiftly.

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