Following the government's review of enterprise management incentives (EMI), changes were announced in the Spring Budget to relax certain requirements for the grant of EMI options. Whilst a long list of qualifying requirements remains, this will somewhat simplify the process.
From 6 April 2023, the changes are as follows:
there will no longer be a requirement to include details of share restrictions in EMI option agreements; and
companies will not be required to declare that an employee has signed a working time declaration on grant and there will be no penalties for failing to produce a signed working time declaration or provide a copy to employees (although note that the changes will not remove the working time requirement itself).
These changes will apply to options granted on or after 6 April 2023, as well as options that have already been granted but not yet exercised as at that date.
In addition, from 6 April 2024 the grant notification deadline will be extended, from 92 days after grant to 6 July following the end of the tax year.
These changes will be welcome news for high-growth companies looking to grant EMI options. As well as easing the administrative burden they will reduce the likelihood of compliance issues which can result in the loss of valuable EMI tax treatment. These issues are often flagged as part of due diligence in the run up to an exit and risk obstructing the transaction with delays and additional costs.
What is more, the current requirement for a share restrictions summary on grant does not serve a useful purpose for employees, as they will not acquire the shares until they exercise the options when the restrictions on the shares could be very different. If the options are exit only, the restrictions may not be as relevant as the shares are normally sold to a purchaser immediately after they are acquired.
Although the extension to the grant notification timing will be helpful, it may still be advisable for companies to notify grants promptly to avoid issues with options being exercised before they are notified. It is also currently possible to make a reasonable excuse claim for a late notification but it may be that this process will be curtailed to reduce HMRC administration.
Other share plans
For companies who do not qualify for EMI, changes announced last Autumn also take effect on 6 April 2023 and may enable them to operate another UK tax favoured discretionary option plan, the company share option plan (CSOP). The changes will double the individual CSOP limit to £60,000 and relax the current share class restrictions, widening access to companies with multiple share classes.
Finally, the government has announced a call for evidence in respect of two other UK tax favoured share plans: share incentive plan (SIP) and save as you earn (SAYE). Simplification of these all-employee plans could be of benefit to companies who currently find them too onerous and costly to implement.
Home >Articles > Spring Budget 2023: incentives changes
Spring Budget 2023: incentives changes
EMI
Following the government's review of enterprise management incentives (EMI), changes were announced in the Spring Budget to relax certain requirements for the grant of EMI options. Whilst a long list of qualifying requirements remains, this will somewhat simplify the process.
From 6 April 2023, the changes are as follows:
there will no longer be a requirement to include details of share restrictions in EMI option agreements; and
companies will not be required to declare that an employee has signed a working time declaration on grant and there will be no penalties for failing to produce a signed working time declaration or provide a copy to employees (although note that the changes will not remove the working time requirement itself).
These changes will apply to options granted on or after 6 April 2023, as well as options that have already been granted but not yet exercised as at that date.
In addition, from 6 April 2024 the grant notification deadline will be extended, from 92 days after grant to 6 July following the end of the tax year.
These changes will be welcome news for high-growth companies looking to grant EMI options. As well as easing the administrative burden they will reduce the likelihood of compliance issues which can result in the loss of valuable EMI tax treatment. These issues are often flagged as part of due diligence in the run up to an exit and risk obstructing the transaction with delays and additional costs.
What is more, the current requirement for a share restrictions summary on grant does not serve a useful purpose for employees, as they will not acquire the shares until they exercise the options when the restrictions on the shares could be very different. If the options are exit only, the restrictions may not be as relevant as the shares are normally sold to a purchaser immediately after they are acquired.
Although the extension to the grant notification timing will be helpful, it may still be advisable for companies to notify grants promptly to avoid issues with options being exercised before they are notified. It is also currently possible to make a reasonable excuse claim for a late notification but it may be that this process will be curtailed to reduce HMRC administration.
Other share plans
For companies who do not qualify for EMI, changes announced last Autumn also take effect on 6 April 2023 and may enable them to operate another UK tax favoured discretionary option plan, the company share option plan (CSOP). The changes will double the individual CSOP limit to £60,000 and relax the current share class restrictions, widening access to companies with multiple share classes.
Finally, the government has announced a call for evidence in respect of two other UK tax favoured share plans: share incentive plan (SIP) and save as you earn (SAYE). Simplification of these all-employee plans could be of benefit to companies who currently find them too onerous and costly to implement.
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