HMRC tax advantaged share incentive plans

The expected changes to the Company Share Option Plan (“CSOP”) were confirmed in the Spring Budget – an increase in the limits from £30,000 to £60,000 and the removal of restrictions on the type of shares that can be used from 6 April 2023. This will increase the flexibility and attractiveness of a CSOP for companies who do not qualify for an Enterprise Management Incentive (“EMI”) Plan.

Outside of the main Spring Budget announcement, there were a couple of interesting pieces in respect of the Enterprise Management Incentive (“EMI”) option plan that have arisen out of the recent EMI consultation.

The EMI plan tends to fit smaller companies, with size limits of 250 employees and £30m gross assets. It is a flexible share option plan, provided you are not carrying on an excluded trade and is generally the “go to” scheme for SME’s. However, there are a few administrative conditions which trip companies up and are generally raised as an issue when undergoing due diligence for a potential exit.

Firstly, from 6 April 2023 there will no longer be a requirement to set out all restrictions relating to the underlying shares in the EMI option agreement. Existing unexercised EMI options will also benefit from these changes (if exercised post 5 April 2023), meaning if the restrictions have been missed from the option agreement, it will no longer be an issue which may jeopardise the EMI status of the option.

Secondly, the working time declaration and provision of this declaration for the employee will be removed for EMI options granted after 5 April 2023; this will also retrospectively apply to any existing unexercised EMI options which are exercised post 5 April 2023. Providing the employee a signed copy has proved particularly difficult to evidence on due diligence type scenarios, so will be a welcome change.

It should be noted that the changes do not remove the working time requirements for the employee to work either 25 hours a week or at least 75% of their working time for the company or group – the employee still needs to meet the requirements but will not need to sign a declaration to do so.

Finally – a change was announced for EMI options granted after 5 April 2024 that will be a welcome relief for companies adopting the scheme. Currently, all EMI options must be notified to HMRC within 92 days of the date of grant. If this date is missed, the options will not qualify as an EMI option. From 6 April 2024, the 92-day deadline will be removed, and instead the options must be notified to HMRC by 6 July following the tax year. There are no details yet, but we assume that notification will simply be part of the annual EMI return that must be filed with HMRC by 6 July. This relaxes an additional administrative burden for the company, along with, hopefully making it easier to remember as part of the annual return cycle!