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State aid approval to expire for EMI schemes


UK businesses that plan to grant new share options after 6 April 2018 to employees under existing Enterprise Management Incentive (EMI) schemes, or set up new EMI schemes after that date, should consider waiting to see whether the tax advantages they promise are re-approved under EU State aid rules, a share plans and incentives expert has said.

Those who are or could be in a position to grant EMI options within the next couple of days should aim to do so, they said.

On Wednesday, HM Revenue & Customs (HMRC) issued a statement confirming that existing state aid approval for EMI schemes in the UK would expire on 6 April, and that no new approval had yet been obtained.

The statement outlined what the UK government believes is the impact of that "lapse".

HMRC said: "Those involved in the establishment of EMI schemes and grant of EMI share options need to be aware that there will be a period between the lapse of the existing approval on 6 April and a decision by the EU Commission on a fresh approval. The government is working hard to ensure this period is as short as possible."

"HMRC considers that the state aid approval applies to the granting of share options and therefore that share options granted up to and including 6 April 2018 won’t be affected by this lapse of the approval," it said.

"EMI share options granted in the period from 7 April 2018 until EU State aid approval is received may not be eligible for the tax advantages presently afforded to option holders, and accordingly share options granted in that period as EMI share options may necessarily fall to be treated as non-tax advantaged employment-related securities options," it said. "Companies may wish to consider delaying the grant of employee share options intended to qualify as EMI share options until fresh EU State aid approval has been given."

EMI options were introduced by the Finance Act 2000. They are intended to help smaller companies with growth potential to recruit and retain the best employees, and offer generous tax advantages to employees of those companies which qualify.

Unlike the other three UK tax-advantaged employee share scheme (TASS) types, EMI options involve the provision of state aid by the UK to companies granting them. This is because the benefits of EMI options are restricted to companies with certain business activities, unlike the other TASS types. State aid is generally unlawful under the EU treaties, unless it clearly falls within certain exceptions or has been reviewed, in advance of implementation, by the European Commission and found to be compatible with the relevant treaty provisions.

EMI options were approved by the Commission in a decision issued on 9 July 2009. That approval will expire at 11 pm on 6 April 2018 in the UK, which is midnight Brussels time on that date. A Commission decision to renew State aid approval for EMI options has been requested by the UK, but has not been issued as yet.

If state aid approval is not renewed before the end of 6 April 2018, the availability of tax reliefs for EMI options and any shares acquired pursuant to them may be restricted from that date until such time as approval is renewed, even though the relevant UK tax law will be unchanged, unless and until it is amended to reflect the expiry of approval. As EU State aid policy evolves significantly over time, any new approval may impose new or amended requirements for EMI options granted under that approval.

Christine Yuill of Pinsent Masons, the law firm behind Out-Law.com, said: "Companies and share plan advisers will be relieved that the government considers the tax advantages for EMI options granted before 11pm on 6 April 2018 BST, and on disposals of shares acquired under them, will continue as they currently operate beyond 6 April."

"Companies planning to grant new EMI options soon will be less pleased, especially as there are only two clear days left for valid grants to be made before the current EU State aid approval expires, particularly given that the previous brief updates from by government confirming that State aid approval was being sought did not directly address the possibility that it would come later than 6 April," she said.

"Companies should consider carefully how to manage possible grants after 6 April 2018 and before any new approval is issued, and seek advice about this, as any such grants may not qualify for any tax advantages. There may be merit in holding off making further EMI grants until fresh EU State aid approval has been secured," Yuill said.

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