Welcome changes to EMI options following Spring Budget

Changes announced in the Spring Budget have made it easier for small and medium sized companies to offer company shares to employees under changes to the Enterprise Management Incentive (EMI) options scheme. The Chancellor, Jeremy Hunt, has removed some of the technical administrative hurdles companies have to clear before being able to offer EMI options. These are welcome changes which should help small and medium-sized companies recruit and retain staff by simplifying the process to grant EMI options.

So, let’s hear about the changes. Helen Hibbert is a share plans specialist and earlier she joined me by video-link to discuss it. I started by asking about the background to this:

Helen Hibbert: “In the past companies had to set out in their option agreements, particular requirements. So the first one was the restrictions which shares were subject to that had been granted options over, and that had to be set out in the option agreement. Then also you had a declaration that employees had signed - a working time declaration - which had to be confirmed in the option agreement too. So these changes have become effective from 6 April this year for options granted after that day, but also, interestingly, for options that were granted before 6 April but have not yet been exercised.”

Joe Glavina: “So what do you make of the changes, Helen? How helpful are they to businesses?”

Helen Hibbert: “So, obviously, it's helpful to reduce any administrative burdens going forward but the more interesting aspect is the retrospective aspect of the change, so for the options that were granted before 6 April but have not yet been exercised. So often, when we have sales and purchases of companies who've got EMI options in place, we encounter lots of problems around these requirements. So, missing declarations, and particularly not setting out the restrictions in the agreement itself and that leads to us having to apply to HMRC for clearances so that slows down the progress of the deal. Then, also, having to draft, and negotiate, complex escrow provisions in the agreement itself to deal with this situation. So, hopefully, these changes will bring down the costs and the effort for both parties on transactions going forwards and then, particularly if you've got transaction coming up where you're anticipating that you're going to have some of these issues arising, now you know that they've fallen away.”

Joe Glavina: “What about the third of the changes, Helen, the one that comes in next year?

Helen Hibbert: “Yes, so on 6 April next year, companies will no longer have to notify HMRC of the grant of the EMI options within 92 days, but instead they'll have to notify them by a deadline of 6 July following the end of the tax year in which the options were granted. I know that sounds more complicated than it was before but, actually, it's a good thing because it brings EMI in line with the annual share reporting process that all companies go through for other plans. So, actually, you've got one key date to remember rather than two.”

The share plans team has written about these changes in some detail in their Out-Law article ‘UK makes it easier for smaller companies to offer share incentives’. We’ve put a link to it in the transcript of this programme.

LINKS
- Link to Out-Law article: ‘UK makes it easier for smaller companies to offer share incentives’