The notice, published in HMRC's latest share plans bulletin, confirms the position as understood by tax lawyers, and addresses a remaining uncertainty relating to the temporary lapse in EMI state aid approval, according to share plans and incentives expert Lynette Jacobs of Pinsent Masons, the law firm behind Out-Law.com.
The bulletin also confirms that HMRC will dis-apply the usual three-year EMI option statutory individual limit where it would prevent companies from reissuing EMI options to replace any EMI options granted between 6 April and 15 May and subsequently cancelled. The three-year rule prevents companies from granting employees options over shares with an unrestricted market value of more than £250,000 in any three-year period.
"Note, however, that the expected extension of the qualifying share ownership period for entrepreneurs' relief from 6 April 2019, from one year to two years, might now be something that companies want to factor into any decision about whether to cancel and re-grant EMI options because of state aid-related concerns, particularly if a transaction is in contemplation and/or is a shorter term ambition for the business," Jacobs said.
The government announced a number of changes to entrepreneurs' relief, including an extended minimum holding period, as part of last week's Budget. The changes are expected to be introduced by way of the 2019 Finance Bill. Entrepreneurs' relief reduces the capital gains tax payable by individuals on gains realised on disposals of shares in companies to 10%, subject to a number of conditions.
EMI options were introduced by the 2000 Finance Act. 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. The European Commission granted state aid approval to EMI options on 9 July 2009, but that approval expired at 11pm UK time on 6 April 2018. A renewed state aid approval application by the UK was not granted until 15 May 2018.
The renewed state aid approval decision came with additional disclosure requirements in connection with EMI options, to the effect that where more than €500,000 was provided in 'aid' the relevant company must be named and certain other details disclosed. Share plans and incentives expert Fleur Benns of Pinsent Masons said that although HMRC's latest communication clarified the tax advantaged status of EMI options issued while state aid approval had lapsed, it was not yet clear how many companies granting EMI options after 6 April 2018 might be required to make new state aid transparency disclosures about those options.
"The deadline for any such disclosure related to tax relief will fall one year after receipt of a qualifying value of (aggregated) state aid by the relevant business," she said. "In the case of EMI options, therefore, the deadline for a particular company could not fall earlier than 7 April 2019."
"Few, if any, companies are expected to exceed the state aid value threshold and be required to make disclosures related to EMI options, and any that do may not do so for some time. It is difficult to be certain of this, however, in the absence of detailed guidance from HMRC or HM Treasury as to how to compute the value of EMI option-related state aid, which is treated as being given at the time of grant of EMI options," she said.