Proposed improvements to Enterprise Management Incentives (EMI Options)

April 13, 2012 - PRLog -- Following our March press release commenting on the Chancellor of the Exchequer’s Budget Statement on 21 March 2012, this press release looks in more detail at the proposed changes regarding Enterprise Management Incentives (EMI Options).

The key proposals regarding Enterprise Management Incentives (EMI Options) are as follows:

•   The individual grant limit for EMI Options is to increase significantly from £120,000 to £250,000, subject to State aid approval. This will allow additional grants of EMI options to be made to key employees who have already reached their maximum allocation of EMI Options. The timing of the introduction of the higher limit is, however, unclear, although it is understood that the Government hopes that State aid approval will be forthcoming by the time the Finance Bill receives Royal Assent. This may present an opportunity for the exchange of an EMI option which is unapproved (because it exceeded the £120,000 limit) for the grant of a new EMI option.

•   Following extensive lobbying regarding the extension of entrepreneurs’ relief and the relaxation of the 5% shareholding limit, the relief is to be extended to shares acquired on the exercise of EMI options.
Where capital gains qualify for entrepreneurs’ relief, CGT is chargeable at 10%, rather than the normal 18% and 28% rates. The current conditions which must be met throughout a one-year holding period are that the individual must, broadly, have a 5% interest in a qualifying company, and the individual must be employed by the company or its group.
The proposal is that, even where an individual does not have a 5% interest, the relief should apply where shares are acquired on the exercise of an EMI option and are held for at least a year, during which the other conditions must continue to be met.
This of course results in the somewhat curious situation that an employee who purchases a small holding of shares in his employing company will not qualify for entrepreneurs’ relief, whereas an employee who acquires a similar holding on the exercise of an EMI option could qualify if the shares are held for at least one year during which period the holder remains in employment. The advice, therefore, is likely to be that, if the proposal is enacted in its current form, qualifying employees should normally acquire their shares through the exercise of EMI options, even if the EMI option is granted one day and exercised the next.
Subject to State aid approval, it is proposed that the new rules will apply to shares acquired on the exercise of EMI options on or after 6 April 2012. Thus, the earliest date on which shares can be disposed of with the benefit of entrepreneurs’ relief under the new rules will be 6 April 2013.

•   Additionally, the Chancellor proposed to provide additional support to start-up companies to assist them in being able to operate an EMI scheme and to consult on extending the EMI scheme to academics who are employed by qualifying start-up companies, but who are currently unable to participate. It is not entirely clear what is intended here, but we are maintaining a watching brief and will keep you informed of further developments.

News release ends, 13 April 2012. http://www.postlethwaiteco.com/
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Notes for Editors:
POSTLETHWAITE is a law firm which provides specialist advice on employee share schemes, employee share ownership and majority  employee ownership, including EMI share options, approved options, long term incentive plans, Share Incentive Plans (SIPs), ownership by employee trusts and a wide variety of other share schemes.  We look after clients from all parts of the UK, with a particular focus on smaller listed and private companies, creation of employee-owned companies, and – to take over responsibility for public services – employee-led mutuals and social enterprises.  

For further information concerning employee ownership and employee share incentives, please contact Robert Postlethwaite on 020 7470 8805  11-15 Betterton Street London WC2H 9BP