To become more attractive to non-UK companies
Following on from the recent announcement by HM Revenue and Customs regarding a significant development concerning EMI schemes, the proposed amendment to the EMI legislation has been included in the Finance Bill 2010 and is intended to take effect from 6 April 2010.
The change will relax the requirements of the current legislation and will enable foreign companies with a permanent establishment in the UK to grant options under the EMI regime (subject to the other EMI criteria being satisfied) on or after 6 April 2010.
Background
The EMI regime was introduced in the UK in July 2000 and is a tax advantaged discretionary share option plan aimed at helping smaller independent companies, with gross assets of £30 million or less, to recruit and retain high calibre employees. The aim behind its introduction was to allow smaller and often cash poor entrepreneurial and new start up companies to offer favourable levels of remuneration through share options. The plan is the most flexible of UK tax-favoured option plans and affords particularly generous tax treatment for a participating employee.
Qualifying criteria
For a company to qualify to grant EMI options, the EMI legislation currently requires that it must carry on an EMI qualifying trade wholly or mainly in the UK. However, the change announced means that companies with a permanent establishment in the UK will be able to grant options under the EMI regime (subject to the other EMI criteria being satisfied).
Companies will still need to have gross assets of not more than £30 million, have fewer than 250 full-time equivalent employees and not be under the control of another company.
Commentary
The changes are beneficial for UK tax-paying employees of overseas companies with a permanent establishment here and, importantly, will allow these companies to offer the particularly generous tax advantages of EMI options.
At a time when the global economy remains in a parlous state and employers continue to look at cost reductions, including by freezing or reducing salary levels, the ability to offer EMI options to incentivise employees could be attractive.
Resources
HMRC Guidance
http://www.hm-treasury.gov.uk/press_76_09.htm
http://www.hmrc.gov.uk/pbr2009/enterprise-manage-incent-1265.pdf
For further information on the EMI scheme, or to discuss any of the issues raised, please contact Guy Abbiss (guy.abbiss@abbisscadres.com) or Libs Davies (libs.davies@abbisscadres.com) on +44 (0) 203 051 5711.
