EMI options granted after the end of 6 April 2018 may not qualify for relief, according to HMRC’s announcement on 4 April 2018, two days before the deadline.
EMI tax relief requires EU State Aid approval to operate. This needs to be renewed every ten years, and it has been known for some time that the current approval expires at the end of the tax year. The Government have applied to the EU for renewal, but in the current climate it may not be surprising either to learn that this has not been obtained before the expiry date or that the time frame for when this will be obtained is unknown.
In the meantime, in its Employment Related Securities Bulletin (No 27), HMRC has advised companies that EMI tax relief will not be treated as available unless options are granted before the close of 6 April. If options cannot be granted by then, it advises companies to consider delaying the grant of Enterprise Management Incentives (EMI) share options to its employees until fresh EU State Aid Approval for EMI is received.
To the best of our knowledge, there is no policy intention to remove EMI and the Government is making efforts to obtain renewal as soon as possible. However, no further information on current progress has been made available.
Any state aid approval received may be granted on an interim basis, at least until 29 March 2019 when the UK is scheduled to officially leave the EU. Some level of uncertainty still exists as it may well be that the EU could favour prioritising current Brexit negotiations over a temporary renewal of state aid approval for EMI Options. However, the EU’s recent grant of state aid approval for Sweden’s ‘Employee Share Tax Regime’ and Ireland’s ‘Key Employee Engagement Programme’ (KEEP), which are largely similar to the UK’s EMI Share Option Scheme, could offer some hope of the likelihood of a renewal of state aid approval being received.
HMRC considers that the State Aid approval applies to the granting of share options and, therefore, EMI share options granted up to and including 6th April 2018 won’t be affected by this lapse of approval. However, any EMI share options granted on or after 7th April 2018 will be treated as non-tax advantaged share options. These options may be subject to both income tax and, potentially, NICs on the exercise of the option, in addition to capital gains tax on any gain made after the point of exercise of the option to the sale of the shares.
For now, it is hoped that the renewal of the EU state approval for EMI will be granted to the UK without too much of a delay or any substantial change in the eligibility criteria.
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