James Tillotson FCA explains the complications arising potentially for businesses issuing EMI share options.
Businesses considering granting EMI share options, a tax advantageous scheme to incentivise employees, need to be aware of important developments between the government and EU. Be sure to read on to understand how your business could be impacted as things currently stand and the options available to you.
EMI is subject to EU State Aid approval rules. During the Spring Budget 2017, the government confirmed it was seeking approval from the EU to extend the application of EMI as a tax relief beyond 2018. The deadline for this is 6 April 2018 and while the government claims to have followed due process, a final response and approval has not yet come from the European Commission.
Potential scenarios if you're proposing to grant EMI options
This news only emerged from HM Revenue & Customs (HMRC) on 4 April 2018. They remain hopeful that the application will be extended, however, they can't put a timeline as to when this might happen. This means your options are limited to the following:
You sign your EMI options off by Friday 6 April for them to be approved by the Revenue
Where the above is not possible then you'll need to wait for approval upon signing
In the case of the second option, the uncertainty over how long it will take could create complications. Because EMI is based on a valuation of your business, the longer the wait the greater the likelihood the valuation will change. That could mean reissuing the valuation application.
Furthermore it could impact on the application of Entrepreneurs' Relief as employees could lose any number of months accruing. Where options are signed in the interim (post 6 April), it's not clear if approval will be retrospective in terms of from 7 April up to the date of when formal approval may be granted.
If approval isn't retrospective then signing options in the interim runs the risk and cost of having to reissue them. Things could be further complicated by the fact that Brexit is taking place in March 2019. Relations with the EU are changing and penalties could potentially be applied to individuals in the transitioning period.
What if your EMI options have already been granted?
HMRC considers that EMI options granted up to and including 6 April 2018 aren't impacted by the delay in granting EU State Aid approval.
The content of this post is up to date and relevant as at 09/04/2018.
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