Share schemes: EMI and registration issues
There is good news on the EMI share option scheme, but confusing guidance on the deadlines for registering new share schemes and for submitting annual returns.
You will recall that at very short notice, the government announced that the EU State Aid exemption for the Enterprise Management Incentives (EMI) share option arrangements had not been renewed by the European Commission by the deadline of 6 April 2018.
EMI share options
The consequence was that new EMI options granted after that date were no longer guaranteed tax reliefs. There was also considerable lack of clarity as to whether existing EMI options remained valid.
Employment-Related Securities Bulletin 28 contains good news in this connection. It states that on 15 May the European Commission confirmed that it would not raise objections to the prolongation of the scheme on the grounds that it is compatible with the internal market of the EU.
Looking at the underlying announcement from the European Commission which inaccurately refers to the “UK Enterprise Management Initiative scheme”, the rather woolly HMRC ERS bulletin statement is clarified to confirm that it does not distort competition in the Single Market.
“The Commission’s assessment found that the prolongation of the measure is necessary to help UK SMEs attract and retain talented and skilled personnel” and along with a number of safeguards such as a cap on the value of share options at both employee and employer the scheme is in line with EU State aid rules.
It seems relatively clear that not only is the EMI share option scheme up and running again for options granted on or after the date of the decision on 15 May but, given that this is a prolongation, there should be no hiatus and all options validly granted will continue to qualify for tax relief, even those in the period of uncertainty.
The full English language version of State Aid Case report SA.47789 referring to the decision is now available. This confirms that the UK Treasury asked for the EU State Aid approval for the EMI scheme to be extended on 16 March 2018, and provided further information in response to the Commission's questions on 17 April 2018.
Given that the most recent authorisation was in 2009 and presumably it had an end date of 6 April 2018 from that point onwards, one might have expected the authorities in this country to take action more precipitately, at least one year in advance of what could easily have turned into a very embarrassing disaster for the politicians, the civil servants and most importantly, employers and employees who lost out on tax relief as a result of administrative inefficiency.
Registration of new share schemes
Separately, the Tax Bulletin includes a reminder to those who have registered new schemes under any of the following arrangements:
- Company Share Option Plan (CSOP)
- Share Incentive Plan (SIP)
- Save As You Earn (SAYE) schemes.
While the wording is somewhat confusing, it appears that the message HMRC is trying to convey is a reiteration of the requirement that any new share scheme established in 2017/18 must be registered with HMRC by 6 July 2018 and an annual return filed by that date.
The wording of the latest ERS bulletin is misleading since it infers that any company with a new scheme that has been appropriately registered in a timely manner cannot submit a late annual return, with the conceivable consequence if it did so that the scheme would cease to qualify for tax reliefs.
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This conflicts with the general rule in the underlying legislation whereby a company operating a share scheme registered in an earlier year is able to make a late return. It is to be noted that the filing of late annual returns may not invalidate a scheme, but will come at the expense of liability to a penalty. This interpretation is consolidated by the following extract from Employment-Related Securities Bulletin 26:
“All annual returns for ERS have to be submitted online by 6 July. All new schemes established during 2017 to 2018 should be registered by 6 July. For new Company Share Option Plan (CSOP), Share Incentive Plan (SIP) and SAYE schemes established during 2017 to 2018 - these schemes can’t be registered once the 6 July deadline has passed and you’ll be prevented from submitting an annual return.”
Time will tell as to whether further flaws in the HMRC computer system such as those experienced in recent years will mean that the 6 July filing deadline is relaxed again in 2018 for some or all share schemes.
This article has been amended to refer to the full EU Commission decision on State AId for the EMI scheme.