Enterprise management incentive options | simplification of the grant process

At the Spring Budget on 15 March 2023, the government announced a number of changes to simplify the process for granting enterprise management incentive (EMI) options. Two of the changes have already been introduced, with a third change to take effect from 6 April 2024. 

Changes already made

For EMI options granted on or after 6 April 2023, the changes:

• remove the requirement for the company to set out details of any restrictions on the shares in the option agreement; and
• remove the requirement for the company to declare that an employee has signed a working time declaration when they are issued an EMI option. It is important for companies to note that the removal of the requirement for an employee to sign a working time declaration does not remove the working time requirement itself - to qualify for EMI, an employee must still work 25 hours a week or, if less, 75% of their working time on the business of the EMI company or group.

These changes also apply to options granted before 6 April 2023 which have not yet been exercised.

HMRC guidance

Further detail is set out in HMRC's Employment Related Securities Bulletin 49 (March 2023), and HMRC has recently updated its guidance to reflect these changes.

New guidance covers the effect of the changes on options granted before 6 April 2023. HMRC notes that it is technically possible that options which an employer previously regarded as non-qualifying (for example, due to the fact that no working time declaration was signed) may be brought back into the scope of the EMI relief, with the possibility that the EMI limits, such as the £250,000 individual limit, would otherwise be exceeded.

In such circumstances, the employer must make arrangements to determine which of the relevant options (or which part) will be within the maximum and qualify as EMI options. HMRC's guidance contains details of the arrangements to be made, together with examples of apportionment which companies with any options falling into this category should consider.

Further change to be made from 6 April 2024

A further change has been announced which will apply to EMI options granted on or after 6 April 2024.

From 6 April 2024, the government will extend the time limit for a company to notify HMRC of the grant of an EMI option from 92 days following grant, to by 6 July following the end of the tax year.

Further detail is awaited, but we expect HMRC will make further changes to the Enterprise Management Incentives (EMI) annual return templates next year. The change in the notification requirements will mean that the annual returns process will become even more important for companies operating EMI plans.

Note that this is a future change - to qualify for tax relief, companies granting EMI options prior to 6 April 2024 must continue to notify the grant of EMI options to HMRC within 92 days of the date of grant. 

Please get in touch with your usual Osborne Clarke contact or one of the experts below if you have any queries or would like to discuss further.