The State Aid status of the UK’s EMI share option scheme rules lapsed on 6 April 2018.
The Enterprise Management Incentive (‘EMI’) share option scheme is a very valuable tool for medium-sized companies to provide share incentives to staff. The only tax charge for an employee is when they ultimately sell the shares they gain on the exercise of the option, and this tax charge is at a rate of 10%, rather than their usual income tax rates if the exercise is more than 12 months after the date of grant.
However, because of the lapsed State Aid status, EMI share options granted from 7 April 2018, until the new State Aid approval is given, will not receive the beneficial tax treatment. This means that any increase in value of the shares will be subject to income tax at up to 45% (and possibly National Insurance Contributions) at the time of exercise of the option.
The Government is working hard to renew the State Aid status, but until the renewed status is confirmed, companies should delay granting any EMI share options.
HMRC has confirmed that EMI options granted on or before 6 April 2018 will be unaffected.