In a bulletin update, HMRC said the EU state aid approval for the EMI scheme expires on 6 April 2018 and will not be renewed immediately.

The government has, since last year, been following the process of applying to the European Commission for fresh approval and is awaiting its final response.

HMRC’s bulletin states: ‘We won’t receive this before 6 April 2018 and so those involved in the establishment of EMI schemes and grant of EMI share options need to be aware that there will be a period between the lapse of the existing approval on 6 April and a decision by the EU Commission on a fresh approval.

‘The government is working hard to ensure this period is as short as possible’.

HMRC’s position is that share options granted up to and including 6 April 2018 are not affected by this lapse of the approval. It will continue to apply its current guidance and practice, in relation to employment-related securities options validly granted as EMI share options before 6 April.

However, it warns that EMI share options granted in the period from 7 April 2018 until EU state aid approval is received may not be eligible for the tax advantages presently afforded to option holders, and accordingly share options granted in that period as EMI share options may necessarily fall to be treated as non-tax advantaged employment-related securities options.

HMRC stated: ‘Companies may wish to consider delaying the grant of employee share options intended to qualify as EMI share options until fresh EU state aid approval has been given.’

In outline, the EMI options scheme enables companies with qualifying trading activities and gross assets of £30m or less to grant their employees share options up to the value of £250,000 each over a three-year period, subject to certain other restrictions and requirements.

In 2015/16, options were granted over shares worth £380m under this scheme to 23,000 UK employees, up from £310m the year before.

Law firm Pinsent Masons said companies will be relieved that the tax advantages for EMI options granted before the deadline on 6 April and on disposals of shares acquired under them, will continue as they currently operate beyond that date.

However, partner Christine Yuill said the latest HMRC announcement ‘will cause concern given that the previous brief statements made by government confirming that state aid approval was being sought did not directly address the possibility that it would come later than April 6.’

‘The EMI options scheme has been hugely beneficial to qualifying SMEs in helping to incentivize and retain key staff. It would be a shame if the EU decides to withdraw this scheme, but the UK government appears hopeful that approval will be renewed,’ she said.

Peter Rayney FCA CTA, agreed saying: ‘I really can’t see the government stopping EMI plans since they are the cornerstone of employee share provision for SMEs.’

Yuill cautioned that companies should consider carefully how to manage possible grants after April 6 and before any new approval is issued, and seek advice about this, as any such grants may not qualify for any tax advantages.

Guidance Employment related securities bulletin No 27 (April 2018) is here.

HMRC Employee Tax Advantaged Share Scheme User Manual is here.

Report by Pat Sweet