The enterprise management incentive (EMI) scheme is the most popular share option scheme, as it is designed for companies that have gross assets of no more than £30 million.
On 4 April 2018 HMRC announced that the EU State Aid approval for the EMI scheme was due to run out on 6 April, as it hadn’t been renewed in time. This means that any EMI share options issued from 7 April 2018 onwards won’t qualify for tax relief.
It is not clear whether the tax relief for any existing EMI share options continues to apply where those options have not been exercised. HMRC has said that it will continue to apply its current guidance and practice regarding existing EMI options, so it will consider those options to be approved share options for now.
The UK Government is trying to negotiate the reinstatement of State Aid approval for the EMI scheme, but no one knows whether this approval will be backdated to 7 April 2018. Tax relief for the EMI scheme may only apply from the date the approval is reinstated or from a date to be specified in the future. It is possible that the State Aid approval may not be renewed for the EMI scheme before the UK leaves the EU on 29 March 2019.
The implications for employers are not pretty. Any share options granted which do not qualify for tax relief are a benefit in kind subject to PAYE and NIC. The company would normally be able to claim a deduction for corporation tax purposes of the cost of granting the options, but this deduction doesn’t apply if the options are part of an unapproved share scheme.
Shares acquired through an EMI scheme also carry an entitlement to entrepreneurs’ relief on disposal, where the qualifying option was granted at least one year before the disposal of the shares. The employee is not required to hold 5% or more of the ordinary share capital for such EMI-derived shares.