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The Impact of Brexit on EMI

Following the period of uncertainty that resulted from the government’s failure to
secure EU state aid approval for EMI ahead of the expiry date of 6 April 2018,
share scheme advisers have asked for clarity from HMRC on the status of EMI options after the UK exits the EU on 29 March 2019.

On 15 May 2018, the EU Commission decided to prolong the existing state aid approval for EMI to 6 April 2023, subject to
the terms of any withdrawal agreement between the UK and the EU. In the event
that the UK reaches an agreement with the EU in which the UK remains subject to
the EU’s state aid laws, it would be expected that the Commission’s decision
will continue to apply in the normal way and will be effective until 2023 when
the UK would be expected to apply for renewal of that approval. However, in the
increasingly likely event that the UK leaves the EU without having come to a
formal agreement with the EU on the terms of its leaving, HMRC has indicated
that the government’s guidance on state aid in the event of a “no-deal”
situation should lend some comfort.

On 29 March 2019, the EU
Withdrawal Act
 will, if effected as it now stands, repeal the
European Communities Act 1972, which gives EU laws direct force in the UK, and
will convert into UK domestic law, any EU legislation that previously had
direct force in the UK (i.e. laws that would otherwise have lapsed on the UK’s
exit from the EU).  The government’s
guidance, “State aid if there’s no Brexit deal” states that the EU’s state aid rules
will be transposed into UK law under the EU Withdrawal Act. The guidance also
states that the Competitions and Markets Authority will be tasked with the
enforcement and supervision of state aid in the UK. Most importantly, the
guidance states that existing state aid approvals will remain valid and be
carried over into UK law.

In a meeting with leading tax advisers in the UK, HM Revenue
and Customs has confirmed that in the event of a “no-deal” Brexit, the current state
aid approval for EMI will continue to remain valid until 6 April 2023, with no
gaps or periods of uncertainty as was experienced between 7 April 2018 and 14 May
2018—i.e. the period after the previous state aid approval for EMI had expired
and before the EU’s decision to prolong the approval.  

The use of EMI has steadily increased since its inception in
2000 with about 10,000 companies granting EMI options to some or all of their
employees as at 2016. Therefore, confirmation that EMI state aid approval will
remain valid regardless of the outcome of the UK government’s negotiations with
the EU is welcome news to share schemes advisers and to companies who are
planning on granting EMI options in the future.

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