EMI schemes: tax advantages will continue until the end of the Brexit transition period

HM Revenue & Customs has confirmed that tax advantages for UK enterprise management incentive (“EMI”) share options under EU state aid rules will continue until the end of the Brexit transition period, on 31 December 2020.

As you might recall, following a short period of uncertainty in 2018, the European Commission approved the continuation of tax advantages for EMI options.

That approval was widely welcomed by businesses, as the EMI regime promotes the recruitment and retention of talented employees in a competitive market. EMI arrangements are particularly attractive to small to medium sized organisations, and are used to incentivise small groups of employees or individuals – whether they are in management roles or not. They allow qualifying employees to benefit from favourable income and NIC tax treatment, when exercising their share options.

When the European Commission approved the continuation of tax advantages back in 2018, it stated that the decision would only remain valid whilst the UK remained a member of the EU. Therefore, following Brexit, the decision will no longer apply. For the time being, HMRC’s announcement goes some way to allaying concerns of those who deal with EMI schemes regularly, as well as organisations who have implemented one or are contemplating setting one up.

As EMIs are the most flexible and tax-advantaged UK share incentive arrangements, it will be interesting to see how the regime develops within a post-Brexit UK next year. HMRC has confirmed it will provide the necessary information about the future operation of EMI schemes, when it becomes available (and, of course, the forthcoming Budget on 11 March may provide some clarity on the position): we will provide a further update on matters in due course.

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