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Enterprise Management Incentives (EMI): should you act before transition ends?

What should employers with EMI plans do?

Deal or no-deal, Brexit uncertainty remains. EMI options granted after the end of 2020 might not attract tax advantages.

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Liz Hunter

Director of Equity Reward, People Services, Tax

KPMG in the UK

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Cancellation of the London 2020 fireworks is a stark reminder that the end of the year is not far off. The best laid plans of many went out of the window early in the year, but there’s still time to take action on important reward matters and in the case of new EMI grants, there is no time to lose.

EMI and State aid

EMI is one of the most generous UK statutory discretionary share plans for growing companies. The tax treatment of EMI is, however, dependent upon EU State aid approval. When this was last renewed by the EU Commission, with Brexit looming, it was caveated that ’The renewal only applies until the UK ceases to be a Member State’, though HMRC subsequently confirmed that State aid approval of EMI will continue until at least the end of the transition period.

Under the terms of the Withdrawal Agreement, the transition period will end at 11pm on 31 December 2020.

An extension of the transition period appears unlikely, and there is still no clarity on what the State aid regime will be in the UK from 1 January 2021.

EMI grants made prior to 11pm on 31 December 2020 should securely fall within the current approval and will benefit from the intended tax advantages.

The treatment of EMI awards made after that date is, however, uncertain. Whilst legally binding options could still be granted, there is a risk that such grants might not carry all the same tax advantages, particularly in relation to employer NIC relief.  

What should employers with EMI plans do?

Our recommendation to companies wishing to grant EMI options is, where possible not to delay.

It can take several weeks for HMRC to consider and agree any EMI valuation submission, and that process should therefore ideally be underway by the end of October for options intended to be granted before the end of 2020.

The final relationship landscape is far from well-defined and remains subject to conjecture. In a no- deal scenario, we understand the UK government plans that any previously approved State aid measures would retain their status, and any pending or new notification requests could be governed by the Competitions and Markets Authority.

The UK government has not yet, however, published details of its alternative domestic regime for such tax relief measures.

Furthermore, the promised review of EMI, announced by the Chancellor in his March 2020 budget and intended to take place during the autumn of 2020, has been postponed. We understand from HMRC policy teams that this consultation will now only be launched after the next fiscal event. With the Autumn Budget cancelled, the next fiscal event is likely to be a March 2021 Spring Budget.  

Companies planning to make tax-advantaged EMI awards should therefore act where possible before the end of October and ensure grants are finalised before the end of December 2020. 

How can KPMG help?

We can support you to manage your EMI risk, and help ensure your EMI plan delivers enhanced value and remains a powerful tool to incentivise your key employees.

If you have any queries, or would like to discuss how KPMG can assist you, please get in touch with Liz Hunter, your usual KPMG contact, or email employersclub@kpmg.co.uk.

 

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