Enterprise Management Incentives (EMI) are share options granted to company employees/directors. The tax advantaged scheme is a much-used way to attract, retain and reward employees in many qualifying trading companies.
The rules and guidelines provide for a reasonable level of flexibility of design of EMI options, however, there are some very strict administrative points which must be adhered to for the options to retain their qualifying tax advantageous status. In the busy lives of many a company management board, these can be overlooked with significant and costly consequences and the writer has come across more than one occasion where non-compliance has resulted in a need for a company to throw themselves on the mercy of HMRC to fix the issue. HMRC often stick rigidly to the rules, however, some of these small points are now to be put aside.
The changes will apply to EMI options granted from 6 April 2023. Existing EMI share options granted before 6 April 2023 that have not been exercised, will also benefit from the changes.
The changes which apply from 6 April 2023 will:
- remove the requirement for the company to set out within the EMI option agreement, the details of any restrictions on the shares to be acquired under the option – these might be in relation to limited voting rights, for instance
- remove the requirement for the company to declare that an employee has signed a working time declaration when they are issued an EMI option. It does not remove the working time requirement itself. This requirement is that the individual works for at least 25 hours or, if less, 75% of their available working hours in the business
In reality, this declaration is generally included in every EMI option agreement rather than as a separate document but for historic options may not be the case.
New provisions will be introduced to allow EMI share options that were granted before 6 April 2023, but not exercised, to also benefit from the above noted changes.
From 6 April 2024, the government will also extend the deadline for notifying an EMI option from 92 days following grant to the 6 July following the end of the tax year. This will be legislated separately but is a further point which is sometimes overlooked with potentially expensive tax consequences for the option holder. The removal of the 92-day deadline aligns reporting with the annual returns required for EMI options.
All in all, some welcome tweaks to the administrative provisions around EMI options and further encouragement for businesses to consider using EMI option arrangements to attract and retain talent on their business to help them to grow and contribute to a thriving UK economy of the future.