The EU have signed off on ‘State Aid’ rules which mean that it should be possible to start granting EMI share options again shortly. It is believed HMRC will announce an exact date soon.
EMI is a very attractive and popular measure which allows selected employees in small trading companies to be rewarded in a tax efficient manner which is HMRC approved (and has been for 18 years, with cross party support).
Anyone wishing to get more information or advice, please call Paul Eaves on 01704 548698
HMRC have announced via their Employment related securities bulletin (No 27 – April 2018) that due to not having yet received EU State Aid approval for the EMI scheme (the previous approval expired on 6 April 2018) new EMI share options issued after 6 April 2018 will not be treated as tax-approved share option schemes and would therefore be taxed under the far less favourable non-approved regime.
HMRC do reassure taxpayers that options granted up to 5 April 2018 will continue to qualify, so there is no need to panic over existing share options.
However, if you or your clients are in the process of implementing an EMI share scheme, it would be advisable to delay granting options until the approval is granted. Of course, if this is not possible then clients should be made aware of the implications of options falling to be treated as unapproved, or consider other options such as a CSOP.
One of the big differences between approved EMI options and unapproved ones is that any tax paid on exercise is based on the value of shares at grant of the options for EMI schemes, and on the value at exercise for unapproved ones. Therefore any growth in value is sheltered under the EMI scheme.
EMI schemes also provide other valuable features including relaxations of Enterpreneurs’ relief conditions for employees.
Please get in contact with us if you have any concerns or if you require assistance with share option schemes.
HMRC were criticised for their handling of a recent employee share scheme case by the tribunal judge, who noted that they had conducted their investigation “without apparently troubling to look at the scheme rules”. The recent case is not the first time tribunal judges have been critical of HMRC’s conduct.
The case in question involved an employee share option scheme. The taxpayer exercised his share options in October 2007, paying £7,636 for shares worth £111,579. The scheme rules stated that the taxpayer should pay over the PAYE due on the exercise within 90 days, but he was not told the amount to pay by his employers until March 2008.
HMRC charged tax on under ITEPA 2003, s.222 on the basis that this was not within the 90 day limit imposed by the scheme rules. The taxpayer appealed as he could not have paid the PAYE before being told the amount to pay.
The tribunal allowed the appeal, agreeing with the taxpayer that the date of exercise could not be the relevant date as he was not informed of the amount to pay until March 2008.
The tribunal judge stated that s.222 was introduced to target grossly abusive schemes and that there was nothing abusive about this scheme. The case again shows that it often pays to challenge HMRC, especially when they are being over-zealous in their application of the law.
The suggested content of the Finance Bill 2013 has now been published. If it obtains Royal Assent then the new rules it contains will form part of UK tax legislation from 6 April 2013. As ever, it is a long document and briefly here are some of the highlights:-
The proposed statutory residency test is included in the Finance Bill 2013. It has been changed from the draft published under the last consultation and it is therefore worth reviewing these new rules in more detail if they apply to you or your clients.
Income tax reliefs are to be limited to £50,000 or 25% of total income
Shares acquired through an EMI share option scheme could qualify for Entrepreneurs relief after 1 year from the date of the option’s grant (as opposed to the current rules where the shares had to be owned for a year before a sale). The 5% shareholding requirement is also removed from shares acquired under EMI options.
Pension payments made by employers will only be an exempt benefit to an employee, not the family of an employee.
As ever there are a number of changes. If you would like advice on any of these please contact Eaves and Co for further details on how the Finance Bill 2013 could affect you.