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April 10, 2018

State Aid Approval for EMI Options Lapses

HMRC has announced that EU state aid approval has not been renewed for Employee Management Incentive Share Option Schemes (EMIs) effective from 7 April 2018.

The announcement was made in the somewhat obscure "employment related securities bulletin" for April 2018.  This news is not shown on the main gov.uk pages about EMIs.

What are EMIs?

EMIs are one type of tax advantaged share scheme used by companies looking to reward, retain, and incentivise select staff.

The scheme operates by the employer company granting share options to key staff at a specific share price fixed at grant.

Provided the share price at grant is not discounted, the employee can exercise their options without any income tax or national insurance contributions (NIC) implications in the 10 years from grant, even if the actual share price has risen substantially in that period.

Share options without special treatment would normally result in an income tax charge when the options are exercised.  The amount taxable would be the market value of the shares received by the employee less the amounts they actually pay to obtain them.  If the shares are also readily convertible assets, then PAYE would also need to be operated with both employee’s and employer’s Class 1 NICs due as well.

Why is state aid approval needed?

European Union member states are normally prohibited from conferring preferential treatment on organisations as doing so could distort competition across the EU.  However states can apply for special approval from the EU Commission for certain schemes.

EMI state aid approval was first granted in 2009 and this was due to expire on 6 April 2018.

The government has stated it was in the process of applying for fresh approval since last year but that it hasn't receive a final response from the Commission.

Who does this affect?

HMRC have stated that the lapse of approval only affects new EMI options granted from 7 April 2018.  Any schemes and options created up to and including the 6 April 2018 should remain valid (subject to the normal requirements for EMI schemes).

Therefore the lapse of approval should only affect those seeking to set up EMI schemes or grant EMI options from 7 April 2018.

What next?

It is possible that the Commission will grant approval and backdate this to 7 April 2018.  Alternatively approval could only be effective from a future date.

In the meantime, HMRC are recommending that those wishing to set up new EMI options should delay this until approval has been granted by the Commission.

Contact us today to discuss your tax requirements.
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