EMI options: changes in HMRC policy and practice

Companies operating tax-advantaged EMI option arrangements need to be aware of some recent changes in HMRC policy and practice.

Restrictions on shares

An EMI option agreement must contain details of any restrictions on the shares (examples include leaver provisions and restrictions on voting).

Details of the restrictions can either be set out in the option agreement itself, or contained in another document (such as the articles of association or shareholders’ agreement) attached to the option agreement and incorporated into the agreement by reference to the document.

The change in HMRC practice is that, where details of restrictions are contained in another document attached to the option agreement, for EMI options granted after 28 July 2016, the restrictions must be identified for participants. It is not sufficient for the company to refer generally to the other document. In practical terms, this means that a summary of the restrictions should now be drafted and enclosed with the option agreement and corporate documentation containing the restrictions.

In addition, the option agreement will need to specify the title of the document incorporated by reference, when it was dated or adopted, and the dates of any amendments.

Action: check your EMI documents and processes to ensure that you are adequately highlighting any restrictions to option holders in their option documentation.

Working time declaration

To qualify for tax relief, the grant of EMI options must be notified to HMRC within 92 days of the date of grant. This must be done by the company using the HMRC Employment Related Securities Online Service.

Historically, this was done by sending a paper form to HMRC (which included the necessary declarations by the employer and the option holder), but EMI notifications must now be submitted online.

The online notification includes the necessary employer declaration, but companies are reminded that the option holder must also sign a declaration confirming that they satisfy the working time requirement (broadly, that they work at least 25 hours a week for the employing company, or 75% of their working time if that is less).

This working time declaration is typically incorporated into the option agreement, and a copy of the declaration must be provided to the option holder within 7 days of signature.

Action: check your EMI documents and processes to ensure that EMI option holders sign a working time declaration at the time of grant.