Advice To Delay Grant Of New EMI Share Options

Date Added 09.04.18

On Wednesday 4th April HM Revenue & Customs (HMRC) published its Employment related securities bulletin No 27 (April 2018) in which it advised that EU State Aid approval for Enterprise Management Incentives (EMI) share option schemes, will expire on 6 April 2018. The tax relief associated with EMI share options is technically a form of state aid to the companies granting such options and therefore requires approval from the EU Commission.

The full terms of the note can be found here: HMRC ERS Bulletin No.27 (April 2018) EMI State Aid

The good news is that HMRC considers that EMI share options granted up to and including 6 April 2018 (and shares acquired under these options) will not be affected by this lapse of the approval.

The bulletin indicates that EMI share options granted in the period from 7 April 2018 until State Aid approval is renewed “may” have to be treated as non tax-advantaged options. HMRC is recommending that:  “Companies may wish to consider delaying the grant of employee share options intended to qualify as EMI options until fresh EU State Aid approval has been given.”

Currently, there is no guidance on how long this period of uncertainty will persist.  However, HMRC’s bulletin states that the Government is working hard to ensure this period is as short as possible.

EMI share options are extremely tax-advantaged and have been a great success in assisting high-growth companies recruiting and retaining key employees. Notwithstanding the failure to renew EU State Aid approval prior to its lapse, there is no indication that the Government intends to withdraw the benefits associated with EMI share options.

The uncertainty over how long it will take to obtain EU State Aid approval for EMI share options will create complications. The grant of EMI share options is almost always based on a valuation of the business agreed with HMRC. Typically such valuations are valid for 60 days from the date of reaching agreement, but companies can request HMRC to extend this period for up to a further 30 days. Any significant delay in obtaining EU State Aid approval for EMI share options could mean some companies will need to either request an extension or reissue their valuation application in respect of proposed EMI options that were not granted on or before 6 April 2018.

For further information on this issue or employee share options generally please contact Craig Harrison at craig.harrison@tollers.co.uk or on 01908 306937.

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