On 4 April 2018, HMRC issued ‘Employment Related Securities Bulletin No 27’ confirming that EU State Aid approval for the EMI scheme would expire on 6 April 2018 and that no new approval had yet been obtained.

According to the bulletin, the government has been following the process of applying to the European Commission for fresh approval and is awaiting the Commission’s final response. The Commission’s response was not received by 6 April 2018, meaning that EU State Aid approval for the EMI scheme has now expired.

As a result of the expiry of EU State Aid approval, those involved in the establishment of EMI schemes and the granting of EMI share options need to be aware that there is now a period, between the lapse of the existing approval (i.e. 6 April 2018) and a decision by the EU Commission on a new approval, in which the status of EMI share options is uncertain.

HMRC considers that the State Aid approval applies to the granting of share options and therefore that share options granted up to and including 6 April 2018 won’t be affected by this lapse of approval.

If EU State Aid approval is given, HMRC considers that EMI share options granted in the period from 7 April 2018 until EU State Aid approval is received may not be eligible for the tax advantages presently afforded to option holders, and accordingly share options granted in that period as EMI share options may necessarily fall to be treated as non-tax advantaged employment-related securities options.

It is unclear as to whether any potential EU State Aid approval will be either retrospective in respect of options granted from 6 April 2018 and/or whether any EU State Aid approval will be subject to amendments to the currently drafted EMI legislation.

If the EU Commission refuses to grant a new EU State Aid approval for the EMI scheme, then any EMI relief given in relation to options granted after 6 April 2018 would be illegal state aid, and HMRC would be obliged to recover the relief from anyone who had benefitted from the relief.

Therefore, if there are no specific time constraints on a company’s need to grant options, such companies may wish to consider delaying the grant of employee share options intended to qualify as EMI share options until fresh EU State Aid approval has been given.  Should a company wish to grant EMI options prior to EU State Aid approval being given, the company should make it clear to prospective optionholders that the EMI status of the options is uncertain.

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