EMI options: State aid approval prolonged

HMRC previously advised that Enterprise Management Incentive (“EMI”) schemes should not be established until further notice as State Aid approval from the European Union (EU) lapsed on 6 April and EMI options issued prior to re-approval may not be eligible for tax advantages previously afforded to option holders.
On 15 May, the European Commission issued a press release confirming the renewal of state aid for EMI schemes. We therefore expect HMRC will be releasing confirmation shortly that EMI schemes can again be established, which will be a great relief to companies that have placed EMI plans on hold.
 
EMI share option schemes are a tax beneficial way to incentivise employees and are widely used by start-up companies and their employees. The principle benefits of EMI are:
  • There is typically no upfront tax or cash cost to the employer or employee of issuing the options;
  • The employer will normally be entitled to a corporation tax deduction when the employee exercises the options;
  • Gains arising on the exercise of options and the sale of shares by employees should be subject to capital gains tax at 10% rather than income taxes and national insurance liabilities of up to 47%;
  • There is significant flexibility on how EMI schemes can be established to ensure they match the needs of existing shareholders and the company. In particular, schemes can be established to: impose performance criteria before the options can be exercised; link their exercise to a future event such as the sale or listing of the company and to require the forfeiture of options if the employee leaves.
 
If you are interested in discussing how your company may benefit from an EMI scheme or to explore alternative employee incentive scheme, please get in touch with your usual Buzzacott contact.
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