In a press release today, the EU Commission has announced its approval of the prolongation of Enterprise Management Incentive (EMI) scheme in the UK.

State Aid approval for EMIs expired on 6 April 2018 and up until now, it remained unclear whether or not EMIs would be granted State Aid approval, especially in the current Brexit climate. HMRC’s announcement, 2 days before the expiry of the State Aid approval, stated that the government had been following the process for applying for fresh approval since last year. However, the Commission’s press release makes reference to the UK’s application for a prolongation submitted in March 2018, a month before expiry. In any case, the Commission’s approval is a welcome development for both share scheme professionals and EMI operators alike.

In HMRC’s April announcement, it considered that State Aid approval applied to the grant of EMI Options and not their exercise. Without refuting HMRC’s analysis of the application of State Aid approval, it may be worth noting that on a review of the original letter granting State Aid approval to the EMI in 2009, the Commission stated:

“The notification covers duration until 6 April 2018, which is the period during which EMI share options can be exercised.”

It remains unclear whether the Commission’s approval of the prolongation covers the grant or exercise of EMI Share Options. Government clarification of this point may be required and important as there are currently about 8000 EMI share option schemes being operated in the UK.

The Commission has made it clear that its decision to approve the prolongation of EMIs is without prejudice to the Withdrawal Agreement which is currently being negotiated and it will only apply until 29th March 2019 when the UK officially leaves the EU. If the UK enters into a free trade agreement that still makes it subject to some or all state aid restrictions, the UK may need to make a fresh application for State Aid Approval for EMIs when this current approval expires.

It will be interesting to know the government’s plan for sustaining the EMI or a similar share option plan when the UK finally leaves the EU in March 2019.

Pett, Franklin & Co. LLP are experts in employee share schemes, executive incentives and share valuations. To find out more about how we can help you or your client, please call 0121 281 5798 or email enquiries@pettfranklin.com.