Enterprise Management Incentives or "EMI options" are one of the most popular and tax-advantageous employee equity incentives ever introduced in the UK.

However the tax reliefs associated with EMI options are technically a form of state aid that requires periodic approval from the EU Commission. The government applied for renewal of the approval last year but so far EU approval has not been forthcoming. Consequently the current EU State Aid approval for EMI options expires today, 6 April 2018.

What does this mean for EMI options?

HMRC has published issue 27 of its employment-related securities (ERS) bulletin containing its view on what this means for EMI options.

In summary HMRC considers that:

  • EMI options granted on or before 6 April 2018 remain unaffected because the old EU State Aid approval will cover them.
  • EMI options granted from 7 April 2018 until new EU State Aid approval is given "may" be treated as non-tax advantaged options.

In other words, until such time as EU State Aid approval is given, there is a risk that grants of new EMI options are treated as tax unapproved options, even if all the usual conditions and proper requirements for granting EMI options have been complied with.

So what now?

Nobody knows when or if EU State Aid approval will be given or whether, if given, that approval could have retrospective effect from 7 April 2018.

The bulletin observes that companies may wish to consider delaying the grant of EMI options until fresh EU State Aid approval is given. In practice though some companies will be subject to commercial pressures - or have already agreed a competitive EMI valuation with HMRC - meaning it is not realistic to adopt a wait and see approach. What then?

My advice would be to proceed with the EMI option grant, but to build into the grant process contingency around being able to cancel the old option and grant a new one as and when the position regarding EU State Aid approval becomes clearer.

Let's hope the situation is resolved soon. EMI options are the incentivisation workhorse of the SME / OMB market. A protracted period of uncertainty is not helpful at all.