The European Commission has renewed state aid approval for the UK Enterprise Management Incentive (EMI) regime.
Following an unexpected bulletin from HM Revenue & Customs (HMRC) on 4 April 2018, announcing that state aid approval for the UK’s EMI regime was going to expire two days later, the European Commission has now granted fresh state aid clearance for the grant of new EMI options.
The UK’s EMI regime, as originally approved by the European Commission in 2009, was available to qualifying businesses and exempted employees from paying income tax and National Insurance contributions on the gain from shares received under the scheme, while their employer could receive a corporation tax deduction equal to the gain the employee made.
Businesses that had been planning to grant EMI options were thrown into limbo as a result of HMRC’s bulletin, with the tax treatment of EMI options granted after 6 April 2018 being unclear. The uncertainty was compounded by HMRC’s bulletin, which merely stated that “EMI options granted in the period from 7 April 2018 until state aid approval was received may not be eligible for the tax advantages of the EMI scheme.” It was, however, made clear that EMI options granted prior to 7 April 2018 would continue to qualify for the tax advantages of the scheme.
Since the renewal of state aid clearance by the European Commission on 15 May 2018, HMRC has not issued a further bulletin to clarify the position for EMI options granted between 7 April 2018 and 15 May 2018, or to confirm that the tax advantages of EMI options will apply in the same way as for EMI options granted past that date.
While it can be deduced from HMRC’s original bulletin that the tax advantages of the EMI regime will continue as before for new options granted after 15 May 2018, this is not currently supported by any official statement from HMRC.
The tax treatment of EMI options granted in the intervening period is more uncertain, and we wait to hear from HMRC if the European Commission’s approval will apply retrospectively.
While the state aid approval for the EMI regime has been extended until 6 April 2023, it will be subject to the terms of the Brexit withdrawal agreement. However, if the UK government’s approach to securing state aid approval is taken as precedent, it may not be top of the bill.
Kirsten Banks, an Associate in our London office, contributed to the writing of this client alert.