Budget Notes

BN18 ENTERPRISE MANAGEMENT INCENTIVES

Who is likely to be affected?

1. Companies who wish to offer Enterprise Management Incentive (EMI) share options to their employees.

General description of the measure

2. To ensure compliance with EU State aid guidelines, legislation will be introduced in Finance Bill 2008 to make two changes:

•    EMIs will be limited to qualifying companies with fewer than 250 employees; and

•    companies involved in shipbuilding, coal and steel production will no longer qualify for EMI.

3. Regulations will be made to increase the individual employee limit on grants of EMI qualifying options from £100,000 to £120,000.

Operative date

4. The EMI option grant limit increase will have effect in respect of options granted on or after 6 April 2008 and the qualifying company changes will have effect in respect of options granted on or after the date Finance Bill 2008 receives Royal Assent.

Current law and proposed revisions

5. EMIs are tax and National Insurance Contributions (NICs) advantaged share options available to small companies with gross assets not exceeding £30 million, to help them recruit and retain employees. In addition to the gross assets test, EMI is limited to companies or groups which are independent and are not in one of the excluded trading activities listed in Paragraphs 16 to 23 of Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). Furthermore, employees have to satisfy a working time requirement to be granted an EMI share option. Currently, employees cannot hold qualifying EMI options, taking into account Company Share Option Plan options also granted to them, with a total market value of more than £100,000 at date of grant.

6. To ensure EMI continues to meet the EU State aid guidelines, legislation to be included in Finance Bill 2008 will make two changes to the EMI legislation in Schedule 5 to ITEPA. Firstly, it will insert an additional test to limit EMI to companies with fewer than 250 full-time employees. If a company has part-time employees, the full-time equivalent number of these can be calculated by adding to the number of full-time employees a just and reasonable fraction for each part time employee.

7. Secondly, the legislation will add shipbuilding, coal and steel production to the list of excluded trades in the EMI legislation in Schedule 5 to ITEPA.

8. The qualifying company changes will have effect in respect of EMI share options to be granted on or after the date Finance Bill 2008 receives Royal Assent. The changes will not have effect in respect of qualifying EMI share options already granted under the existing rules.

9. The change to the individual EMI option grant limit will have effect in respect of options granted on or after 6 April 2008. This will allow qualifying companies to grant new or additional qualifying EMI options to their employees up to the new limit of £120,000.

Further advice

10. If you have any questions about this change, please contact Chris Murricane on 020 7147 2818 or Ellie Mayor on 020 7147 2822 or by email to shareschemes@hmrc.gsi.gov.uk. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk