European Commission Extends Approval Of The UK's EMI Scheme

On Tuesday 15 May 2018, small and medium sized enterprises (SMEs) received welcome news that the European Commission has extended its approval of the UK Enterprise Management Incentive (EMI) scheme.

The EMI scheme is designed to reduce the tax on employee share options, thereby allowing qualifying companies to invest in the recruitment and retention of staff. Share options granted under the EMI scheme are subject to reduced income tax and/or National Insurance contributions when exercised and they are therefore a valuable incentive to employees. Employers operating an EMI scheme can benefit from reduced national insurance contributions.

European Commission authorisation is required in order for the UK to operate the EMI scheme, and this authorisation was originally obtained in 2009. However, the authorisation expired on Friday 6 April 2018, and UK businesses have, since then, been anxiously waiting for the scheme to be re-approved. Now that the approval has been extended, SMEs can resume granting EMI share options safe in the knowledge that they do not breach EU law and can be tax-advantaged.

Whilst many SMEs were understandably cautious in the absence of Commission approval, others risked the continued granting of options after Friday 6 April, in the hope that the approval would be given in any event. The Commission’s latest press release does not state the date from which the approval will apply and so the tax treatment of these options is still uncertain.

However, it is hoped that approval will apply retrospectively from Saturday 7 April 2018, meaning that options granted on or after that date can still qualify for favourable tax treatment.

The Commission’s press release also confirms that its approval will apply only until the UK ceases to be a Member State of the EU. It further indicates that if any continuing approval is to be required from the EU following Brexit, this is likely to be dealt with in the EU-UK withdrawal agreement. The terms of the UK withdrawal agreement will of course be heavily scrutinised but, for now, it’s back to business as usual for the EMI scheme.

For more details, please contact Irwin Mitchell’s Head of Commercial Tax, Sarah Cardew, on 0207 400 8720 or at sarah.cardew@irwinmitchell.com.