At lunchtime on 4th April 2018, HMRC made the announcement reproduced below as “Employment Related Securities Bulletin No.27”.
It is apparent from this that it would be sensible for companies and/or their shareholders to defer the grant of any EMI options scheduled to be granted after 6th April 2018 until the government has secured fresh EU State Aid approval from Brussels. As yet, we know not when – or even if – this will be, although we do know that HM Treasury is confident that it will be forthcoming, and that this will be sooner rather than later.
If there is some compelling commercial reason why a company needs to grant employee share options after 6th April 2018, and before fresh EU State Aid approval has been given, and such options would otherwise be expected to qualify as EMI share options, careful consideration needs to be given to the terms on which such options are granted so that, if necessary, it will be open to the parties to cancel and re-grant such options at a time when the new options will qualify for the tax reliefs associated with EMI share options.
If the government were to allow the tax reliefs for options purportedly granted as EMI options after 6th April and before fresh approval is given, the government would be obliged, under EU treaty obligations, to recoup from employer companies the element of state aid accorded by such reliefs. In effect, such options will fall to be treated as non-tax advantaged share options.
The final reference to “before 6th April” is an error on the part of HMRC and should read “before 7th April”.
If you would like to discuss this matter further, please contact me by email.
Companies and advisers concerned with the grant of EMI share options
EU State Aid approval for the EMI scheme, expires on 6 April 2018. The government has, since last year, been following the process of applying to the European Commission for fresh approval and we await the Commission’s final response. We won’t receive this before 6 April 2018 and so 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.
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.
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.
HMRC will continue to apply its current guidance and practice, in relation to employment-related securities options validly granted as EMI share options before 6 April.
A further update will be provided in due course.
[End of announcement]