In his first Budget Report on Wednesday, Alistair Darling announced some positive news for those companies operating Enterprise Management Incentive (EMI) schemes. EMI schemes are the most tax efficient way to grant share options to employees but are only available to qualifying companies.
INDIVIDUAL EMPLOYEE LIMITS - INCREASE FROM £100,000 TO £120,000
Regulations will be made to increase the individual employee limit on grants of EMI qualifying options from £100,000 to £120,000. This 20% increase in the value of shares which may be placed under EMI option is the first increase since the introduction of EMI option in 2000. The new limit will have effect in respect of EMI options granted on or after 6 April 2008 but will apply to both new and existing plans.
If you have an existing EMI Scheme we suggest that you check your Rules to ensure that they don't incorporate the £100,000 "cap".
RESTRICTIONS ON "QUALIFYING COMPANIES"
However, there was some bad news too. The range of companies which qualify for EMI will be further reduced. Legislation will be included in the Finance Bill 2008 which will limit EMI to companies with fewer than 250 full time employees. Although there has always been restrictions on the type of company which can award EMI options, this is the first time that they are being restricted depending on the number of employees. However, the EMI scheme was originally designed for small to medium enterprises and is part of the government's plan to encourage employees to be more entrepreneurial. So while larger companies might see this as a negative move, the introduction of this new restriction is perhaps not too much of a surprise.
In addition, companies involved in shipbuilding and coal and steel production will no longer be able to award EMI options. These changes will not affect existing EMI options and will have affect only in relation to share options to be granted on or after the date that the Finance Bill 2008 receives Royal Assent.
CGT REMAINS UNCHANGED
These changes are in addition to those announced in the pre-budget Report regarding the Capital Gains Tax (CGT) payable on the disposal of EMI shares. Previously, certain disposals would have qualified for full business asset taper relief, giving rise to an effective 10% CGT rate. From 6 April 2008, gains on disposal of EMI shares will be subject to a flat 18% rate of CGT (unless the option holder qualifies for the new "entrepreneurs'' relief").
For further information or advice please contact:
Maureen Burnside
Partner
Employment, Pensions and Benefits Department
DDI: 0141 303 2317
[email protected]
Jacqueline McDonald
Senior Solicitor
Employment, Pensions and Benefits Department
DDI: 0141 303 2321
[email protected]
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