*Please note that since this article was published the EU Commission announced, in a press release on 15 May 2018, that state aid approval had been approved for EMI schemes (Find out more).
HM Treasury has failed to obtain fresh EU State Aid approval from the EU Commission in advance of the deadline on 6 April 2018. This approval is required for the Enterprise Management Incentive (EMI) scheme to continue to be offered by the government.
HMRC have confirmed that options granted on or before 6 April 2018, will continue to benefit from the tax advantages conferred by the EMI scheme, however fresh options may not.
We are now in a (hopefully) temporary hiatus as we wait for the announcement that the renewal of approval has been confirmed. There is some question over whether if an option is granted now, it will be subsequently ratified as an EMI option once State Aid approval is reinstated. Although we cannot be sure, the feeling in the profession is that the approval will not be retrospective, and as such options granted in what I am calling the ‘EMI interregnum’, would not convert to tax-advantaged options.
Companies wishing to provide new EMI options to their employees therefore have two options:
- Wait for approval to be given by the EU Commission;
- Grant options in the ‘EMI interregnum’, with clauses drafted allowing the options to be replaced with EMI options after EU State Aid approval.
The second option is likely to only be taken up where it is commercially imperative to grant options in this period. The health warning here being that whilst issuing replacement options is not inherently a problem should the company or the employees fail to meet the requirements of EMI (or its replacement) at the time of the replacement grant then tax benefits might be lost.
It is worth noting with the second option that depending on the length of time between the grant of the unapproved options and the replacement EMI options, a new valuation will be required.
The Treasury are being coy about when the approval process was started and there seems to have been an oversight. This would certainly explain the lack of publicity or advance warning to advisers and taxpayers. The timescale for approval is uncertain and requires a plenary session of the Commission. The hope is that this will be a matter of weeks rather than months.
With Brexit looming, there is conceivably a worse case scenario that this issue gets parked until the UK is no longer subject to EU State Aid approval, but HM Treasury seem keen to get this sorted.
We await further updates. In the meantime, if you have any queries, please get in touch with your usual Hazlewoods contact.