Posted by Paul Morris on May 16, 2018
In what is welcome news for companies, the European Commission has re-approved the UK’s Enterprise Management Incentive (EMI) scheme under EU state aid rules.
Due to an oversight by HM Revenue & Customs earlier in the year, which failed to re-apply for approval, the previous approval expired on 6 April 2018.
The new approval will apply until the UK leaves the EU. Further detail on the approval will be made available on the Commission’s competition website in due course.
EMI reduces the taxation of employee share options for small and medium sized enterprises (SMEs). Under the scheme, employees of SMEs benefit from reductions from income tax and/or national insurance contributions, when exercising their share options.
In addition, the employer benefits from reductions from such contributions.
The aim of the scheme is to allow SMEs to recruit and retain employees, and thus enable their growth, without unduly distorting competition in the Single Market.
The European Commission, in granting re-approval, found the measure was necessary to help UK SMEs attract and retain talented and skilled personnel. It also found that the measure contains a number of safeguards, such as a cap on the value of the share options that can be subject to the tax advantage both at the employee and employer level, ensuring that potential distortions to competition are limited. On this basis, the Commission concluded that the measure is in line with EU State aid rules.
Whilst we were waiting for renewed approval, HMRC had suggested that companies consider delaying the granting of EMI share options until the situation was resolved. That was on the basis that any EMI share options granted from 7 April 2018 onwards may not receive tax relief when exercised. These options may instead have been treated as non-tax advantaged employment-related options.
If you are contemplating setting up an EMI scheme, or wish to review an existing scheme, please contact one of our EMI team for advice.