EMI share scheme expires - another blow for small businesses

Last month, in the midst of the so far uninspiring Brexit negotiations, the government announced that no EMI share options issued from 7 April 2018 onward will qualify for tax relief due to the fact that EU State Aid has not been renewed.

Despite a commitment to seek a renewal of EU state Aid in the 2017 Spring Statement, the government has thus far failed to live up to its promise.

Incentivising staff in early stage start-ups is a fundamental part of attracting and retaining the best talent, and EMI share schemes offer a highly tax-efficient method of doing so. Jeopardising this could have a serious impact on the UK’s up-and-coming small businesses.

Though we can hope this will only be a small interval in EU State Aid approval, this is yet another blow to the UK’s small business community. HMRC have assured businesses that they are working to ‘ensure this period is as short as possible’ and that a decision from the EU Commission is due ‘soon’.

What is an EMI share scheme?

As the UK’s most popular share plan, EMI share schemes offer highly attractive tax benefits to entrepreneurial businesses. Enterprise Management Investment (EMI) can offer tax efficient advantages to existing employees as a means of retaining and attracting key employees.

Targeted at entrepreneurial SMEs, EMI share schemes offer several valuable tax benefits:

• No income tax is charged upon exercise of an EMI option
• If the company’s share price increases, the uplift is not charged to income tax
• And capital gains tax is usually charged at a reduced rate of 10% (Entrepreneurs’ relief) upon the eventual sale of the share

HMRC have since recommended that:

“Companies may wish to consider delaying the grant of employee share options intended to qualify as EMI options until fresh EU State Aid approval has been given.”