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Business Tax  •  capital gains tax (cgt)  •  Entrepreneur's Relief  •  Personal tax  •  Tax Planning  •  Tax Relief  •  Taxation

EMI enhancements herald new era of share ownership

By RJP LLP on 7 January 2013

Share ownership has always been a powerful motivator for companies looking to recruit and retain talented and loyal staff. It’s something Nick Clegg referred to last year when he talked of the ideal John Lewis Partnership model for companies to aspire to. The Deputy Prime Minister believes companies that offer shares to their workers tend to be more dynamic, have higher levels of morale and staff who are more motivated to work hard.

At a time when salary increases may not be a viable offering for many companies, share options are set to become an even more attractive proposition, provided new proposals earmarked for inclusion in the 2013 Finance Bill are adopted. In the past, what the Government has announced in the Autumn Statement has tended to be introduced, so we expect this tax planning opportunity to become available to clients later in 2013.

If you are considering introducing an EMI share option scheme for staff, or are contemplating a company disposal in the medium term, this legislation will be of interest for capital gains tax planning purposes.

Proposed Improvements to EMI in 2013

Starting from 6th April 2013, the Government plans to allow employees selling share options as part of a company disposal to benefit from entrepreneurs’ relief (ER) on their disposal in the same way as existing shareholders are able to do.

ER is a form of capital gains tax relief which allows a business owner or shareholder to pay capital gains tax at the rate of just 10% on gains of up to £10 million on the disposal of their business or shares.  For personal company shareholders, this tax relief is currently only available once the shares have been owned for 12 months; the result is that those employees who acquire shares through an EMI share option will usually not qualify for the relief, as they won’t have held the actual shares for the requisite period of time.

It is proposed that where shares are acquired through the grant of an EMI option, this 12 month period will commence to run from the date on which the option is granted, rather than the date on which the option is exercised and the shares are acquired, as is currently the case.  This is an extremely welcome measure for employees and companies alike.

In order to qualify for ER, employees must be able to demonstrate that they have:

–       owned the EMI options for at least 12 months prior to the date of disposal. (This means the period of ownership should commence from the day the EMI share options were awarded); and

–       worked for the company consecutively for a period of 12 months during the year when the shares were sold.

The fact that the Government is relaxing the EMI rules to allow the 12 month period to start with the grant of options is very favourable to participants and, in our view, will make EMI plans significantly more attractive than they already are.

A further proposal is expected to extend the qualifying ownership period between an employee leaving an employer and the qualifying exercise of EMI share options. Currently, there is a 40-day qualifying period, but this is expected to be increased to 90 days after the leaving date for an employee leaving the company to still qualify for ER on a disposal.

EMI, ER and academics

In the 2012 Budget, the Government confirmed it would be consulting on whether academics employed part-time by companies would be able to benefit from ER. This was with a view to ensuring that academics working with university spin out companies and research groups would not be excluded from the tax relief.

After discussions, it was decided that because the bulk of work by academics is usually done well before a spin out company is formed, they will not qualify for ER upon a business disposal. Instead there will be new rules created for these situations, which are due to be announced in the 2013 Budget.

If you would like more information on entrepreneurs’ relief and how to ensure you qualify when selling a business, please contact Lesley Stalker by emailing las@rjp.co.uk.

 

 

 

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Share ownership has always been a powerful motivator for companies looking to recruit and retain talented and loyal staff. It’s something Nick Clegg referred to last year when he talked of the ideal John Lewis Partnership model for companies to aspire to. The Deputy Prime Minister believes companies that offer shares to their workers tend to be more dynamic, have higher levels of morale and staff who are more motivated to work hard.

At a time when salary increases may not be a viable offering for many companies, share options are set to become an even more attractive proposition, provided new proposals earmarked for inclusion in the 2013 Finance Bill are adopted. In the past, what the Government has announced in the Autumn Statement has tended to be introduced, so we expect this tax planning opportunity to become available to clients later in 2013.

If you are considering introducing an EMI share option scheme for staff, or are contemplating a company disposal in the medium term, this legislation will be of interest for capital gains tax planning purposes.

Proposed Improvements to EMI in 2013

Starting from 6th April 2013, the Government plans to allow employees selling share options as part of a company disposal to benefit from entrepreneurs’ relief (ER) on their disposal in the same way as existing shareholders are able to do.

ER is a form of capital gains tax relief which allows a business owner or shareholder to pay capital gains tax at the rate of just 10% on gains of up to £10 million on the disposal of their business or shares.  For personal company shareholders, this tax relief is currently only available once the shares have been owned for 12 months; the result is that those employees who acquire shares through an EMI share option will usually not qualify for the relief, as they won’t have held the actual shares for the requisite period of time.

It is proposed that where shares are acquired through the grant of an EMI option, this 12 month period will commence to run from the date on which the option is granted, rather than the date on which the option is exercised and the shares are acquired, as is currently the case.  This is an extremely welcome measure for employees and companies alike.

In order to qualify for ER, employees must be able to demonstrate that they have:

–       owned the EMI options for at least 12 months prior to the date of disposal. (This means the period of ownership should commence from the day the EMI share options were awarded); and

–       worked for the company consecutively for a period of 12 months during the year when the shares were sold.

The fact that the Government is relaxing the EMI rules to allow the 12 month period to start with the grant of options is very favourable to participants and, in our view, will make EMI plans significantly more attractive than they already are.

A further proposal is expected to extend the qualifying ownership period between an employee leaving an employer and the qualifying exercise of EMI share options. Currently, there is a 40-day qualifying period, but this is expected to be increased to 90 days after the leaving date for an employee leaving the company to still qualify for ER on a disposal.

EMI, ER and academics

In the 2012 Budget, the Government confirmed it would be consulting on whether academics employed part-time by companies would be able to benefit from ER. This was with a view to ensuring that academics working with university spin out companies and research groups would not be excluded from the tax relief.

After discussions, it was decided that because the bulk of work by academics is usually done well before a spin out company is formed, they will not qualify for ER upon a business disposal. Instead there will be new rules created for these situations, which are due to be announced in the 2013 Budget.

If you would like more information on entrepreneurs’ relief and how to ensure you qualify when selling a business, please contact Lesley Stalker by emailing las@rjp.co.uk.