Enterprise Management Incentives (EMI) are one of the most generous HMRC approved UK share plans available to growing companies to ‘attract, motivate and retain’ key management individuals.

However, the tax relief provided to employees on exercising their EMI options is funded by EU State aid. As it stands, this comes to an end on 31 December 2020, when the UK officially leaves the EU.

Therefore, where possible, companies wishing to grant EMI options should not delay, doing so could result in the generous tax advantages being unavailable.

The impact of Brexit on EMI grants

When the state aid position was last renewed by the EU Commission, it was specifically stated that ’The renewal only applies until the UK ceases to be a Member State’, however, HMRC has since confirmed that State aid will continue to be available until at least the end of the transition period on 31 December 2020.

With an extension now appearing unlikely, there is no clarity on what the position will be in the UK from 1 January 2021. Therefore, the treatment of EMI awards made on or after 1 January 2021 is currently uncertain. Whilst options could still be granted, there is a risk that these will not carry the same tax advantages.

Furthermore, the promised review of EMI, announced by the Chancellor in his March 2020 budget has been postponed. We understand that this consultation will now only be launched after the March 2021 Spring Budget.

What should companies wishing to grant EMI options do?

EMI grants made on or before 31 December 2020 should still fall within the current approval and will benefit from the usual tax advantages. Our recommendation to companies wishing to grant EMI options is, therefore, where possible do not delay. In particular, it should be noted that:

  • It can take several weeks for HMRC to agree an EMI valuation submission, and that process should therefore ideally be underway by the end of October for options intended to be granted before the end of 2020.
  • Once agreement has been received on the valuation, the options must be granted on or before 31 December 2020 to guarantee the current tax treatment.

If you have any questions regarding the granting of EMI options or indeed the benefits of share schemes generally, please get in touch with a member of our specialist tax team today.