TT271: European Commission state aid approved EMI regime

FRS 102

Further to our Topical Tip 270, regarding EMI Share Option Schemes, on 15 May 2018 the European Commission announced that it had renewed state aid approval of the EMI regime.

This follows HMRC’s announcement on 4 April 2018, that the earlier approval was to expire on 5 April 2018 and any options granted prior to state aid approval being renewed (i.e. from 6 April 2018 to 15 May 2018) might not be eligible for EMI tax reliefs.

Despite this announcement HMRC are yet to confirm their view on options granted during this period, although we envisage there being no interruption in the availability of the reliefs, even if the options were granted during this period.

This will be welcome news to qualifying companies, as the EMI scheme is arguably the most powerful tool at their disposal in attracting and retaining key employees. Broadly speaking qualifying companies are independent companies that undertake the right kind of trade, with gross assets of less the £30m and fewer than 250 full time employees.

The benefit of the EMI scheme is that the growth in the value of the options in the hands of the Employee will be subject to Capital Gains Tax (usually at a rate of 10%) rather than income tax (at up to 45%). The Company granting the options will also get a market value (at the date the options are exercised) deduction to offset against its profits before calculating its Corporation Tax liability. The reliefs are therefore most pronounced in young, fast growing companies.

This is also a timely reminder of the UK Government’s requirement to obtain approval for any state aid schemes from the EU. This requirement will no longer be there when the UK leaves the EU, which would allow the Government, were it so minded, to improve the breadth and scope of Schemes such as the EMI, R&D, Patent box and SEIS/EIS to name but a few.

Rest assured that your Barnes Roffe team are keeping a close eye on any changes and opportunities that arise during these, no doubt, tumultuous times.

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