This update is important for any companies currently operating or planning to implement enterprise management incentive (EMI) option plans. It is also important for any professionals involved in establishing EMI option plans and the grant of options under these plans.
By way of background, the EMI regime, which provides a tax efficient mechanism for employers to incentivise employees by granting share options, is subject to EU State Aid approval. This approval lapses today (6th April 2018). The Government has, since last year, been applying to the Commission for fresh approval but this has not been finalised and the Government is awaiting the Commission’s final response.
As a result of this, companies proposing to issue EMI options should note that there will be a period between the lapse of the existing approval and the grant of a fresh approval. Therefore, any options issued during this window may not be eligible for the tax advantages. The effect of this would be that such options would be non-tax advantaged employment-related securities options and subject to income tax and NICs on exercise. Approval by the Commission may be backdated but there is no guarantee that this will be the case and HMRC’s advice is that companies should consider delaying issuing options intended to qualify as EMI share options until the approval has been granted.
HMRC has said that “the government is working hard to ensure this period is as short as possible” and will provide a further update shortly. It is hoped that the window between the approvals will be short. Please note that HMRC also considers that the lapse of State Aid approval will not affect options granted up to and including 6th April 2018 as the approval is only required for the grant of options.
If you have any queries in relation to the issues mentioned in this blog please contact Greg Vincent or your usual Morrisons’ adviser.