As part of the Spring 2023 Budget, the Government announced slight changes to the rules under the enterprise management incentives (EMI) legislation, which should improve the process for the grant of EMI options. An EMI option is a form of employee share option that confers certain tax advantages on the employee.
In essence, these changes will mean that a company looking to grant EMI options no longer needs to:
1. specify in detail the restrictions on the shares over which the EMI option is being granted; nor
2. make a written working time declaration that the relevant employee spends at least 25 hours per week or 75% of his or her working time working for the Company or a qualifying subsidiary.
These changes will take effect from 6 April 2023, and apply retrospectively to all options that have been granted before that date but have not yet been exercised, in addition to all options granted after this date.
Furthermore, from 6 April 2024, the deadline for notifying the grant of EMI options will be extended from the current 92 days after grant to 6 July after the end of the tax year of grant.
We believe that these changes are helpful as they remove some potential pitfalls with EMI options. There has been no consensus on how much detail should be included about the 'relevant restrictions' in an option agreement; getting this wrong could lead to an option not being treated as a qualifying EMI option. Failure to notify the grant of options within the 92 days window is a common cause of options failing to qualify as EMI options. Aligning the notification period with the period allowed for submitting the EMI annual return should simplify matters.
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