The vagaries of EU State Aid approvals probably pass most of us by. However, they have come centre stage for many SMEs with HMRC’s announcement that it is not expected that an extension to the UK’s existing State Aid approval for EMI options will be granted before 6th April, when the current approval expires.
HMRC has warned that options granted after that date but before any new approval is given may not qualify for the considerable tax advantages associated with EMI options (and so may instead be treated as non-tax advantaged employment-related securities options).
It is understood that options granted up to 6th April will still qualify (even if HMRC is notified of the options after 6th April) and companies may now accelerate their option grants to beat the deadline. It is worth noting that companies often delay granting EMI options pending the agreement of a share value with HMRC but this is not necessary and options can be granted even before a valuation is applied for. To come within the time limit, option agreements should be dated and signed by both the company granting the option and the option holder. Although employees must also sign a declaration on working hours, we anticipate that this can be done after the deadline.
Companies which currently qualify to grant EMI options but miss the deadline are likely to delay granting further options until it becomes clear whether a new State Aid approval will be granted. HMRC’s Bulletin does not give certainty whether options purportedly granted as EMI options in the intervening period will retrospectively qualify for EMI status if and when new State Aid approval is obtained. Although previous State Aid approvals in relation to tax advantaged arrangements (such as VCT relief) have been applied retrospectively, extreme care should be taken before assuming that the same will apply in the this case.