HMRC Have Put A Business Tax Relief Scheme On Hold: Indefinitely!

Big news has surprised tax advisors and employers across the UK:
HMRC has announced that EU state aid has not been renewed for the EMI share scheme… because they missed the deadline.

Not sure what that is? Well, the EMI share scheme mainly benefits small/medium size businesses and their employees. Let us quickly explain…

EMI Share Options Explained + Who Will It Impact?

An EMI share option is where an employee is given the option to acquire ordinary shares in their employer’s company. It acts as an extra incentive for them to join, or remain part of, the company.

This benefits the employee because if the company’s share price is to increase in value between the time the shares were granted and exercised by the employee: the increase won’t be charged as income tax.

It also benefits the employer because it means that they can attract and keep key workers who add value to their business – without having to pay them higher wages. As the business improves through their work ethic, so too will the employees share price.

But this recent announcement by HMRC means that EMI share options that have been issued from 7 April 2018 will not qualify for that tax relief – which most businesses use it for.

The biggest shock of all is that the government didn’t inform tax advisors or employers about this change until two days before the deadline for negotiations.

It’s completely out of the blue, and little clarity has been given to the situation.

HMRC’s Advice & Response

HMRC is recommending that “Companies may wish to consider delaying the grant of employee share options intended to qualify as EMI options until fresh EU State Aid approval has been given.”

From this statement, it seems as though the government hopes that it will manage to negotiate a renewal of State Aid.

What this negotiation will involve is unknown, but ideally, any agreement that is made will backdate any share options that were issued by employers to their employees from 6th April 2018.

There is no information about the timing of this approval, however, the government seem confident it will happen at some point in future.

The Effect This Has On Businesses & Employees

This change could result in employees that have been given shares in their employers business finding themselves facing substantial income tax and NIC charges that they did not think they’d receive.

It will also make these companies look like the bad guy in this situation, and put them at risk of keeping these key workers, who they value so much. Their only option may be to raise wages at short notice, but this is something that most small to medium size businesses are unable to do.

However, the government seem to be clear in their statement that they will reach an agreement – and all involved hope that this agreement will rectify this whole debacle.

The government may need to implement specific legislation to re-grant share options from this period of uncertainty beginning April 6th, 2018, until it’s resolution.

If you are affected by this in any way, it’s worth being kept in the loop about how this all transpires in the coming weeks.

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