Companies currently in the process of implementing an Enterprise Management Incentive (EMI) scheme, or considering doing so, are in a state of flux at the moment. On 4 April HMRC issued a bulletin announcing that EU state aid approval for the scheme was about to expire on 6 April.
The EMI scheme is a tax advantaged share option arrangement that enables employers to attract or retain key staff by granting them share options in their employer company.
It has worked very well for a number of years, but the absence of EU approval calls into question whether the tax advantages will be available for schemes being implemented now. HMRC have warned that they may not.
But are HMRC correct in saying this? This is UK legislation, so primarily it is policed by HMRC. Even with Brexit coming around the corner, the EU would still be within its rights to step in and withdraw the state aid related benefits on options issued now, but HMRC are only under an obligation to enforce this right if the EU takes action. Assuming they don’t, HMRC can allow the rules to work as they currently apply under UK legislation.
Then there is the question of what aspects of the scheme are considered to confer a state benefit. It is only these that can be withdrawn. In fact, the two principal benefits, i.e. the income tax advantage for employees and the corporation tax relief for employers, are not the subject of the state aid approval, so these will not be affected.
This then begs the question “Should companies go ahead with EMI schemes in spite of the absence of EU approval?”. The answer, as so often in life, is perhaps. What we can say more definitely though is that we should not take this current position as a complete stop on EMI schemes. Companies considering EMI should talk to us to weigh up the pros and cons.