Notifying EMI option grants to HMRC – you may need to act by 7 July
HMRC’s deadline for notifying EMI share options has changed, but some plans still require earlier reporting – here’s what you need to do now
HMRC’s deadline for notifying EMI share options has changed
Enterprise Management Incentives (EMI) are flexible tax-advantaged employee share options targeted at growing companies (eligibility requirements include a £30 million limit on gross assets and having fewer than 250 full-time-equivalent employees). Provided all qualifying conditions are met on grant, and no ‘disqualifying events’ occur before exercise, any growth in value of the underlying shares is free of income tax and National Insurance Contributions (NIC).
What you need to know in brief
Several easements to the EMI regime were announced at the 2023 Budget. Amongst these, the deadline for notifying HMRC of the grant of new EMI options on or after 6 April 2024 changed to 6 July following the end of the tax year. However, some EMI share plan rules will have originally been drafted so as to require the employer to notify HMRC within 92 days of the date of grant, otherwise options will lapse or take effect as non-tax advantaged options. This provision will still apply in the rules, irrespective of the change of legislation.
Relevant employers should therefore act now – potentially taking specific action by 7 July 2024 (i.e., 92 days after any EMI option having been granted on 6 April 2024) – to prevent EMI options granted on or after 6 April 2024 inadvertently lapsing or losing their tax advantages. Affected employers should also consider amending their plan rules to prevent this issue arising in the future.
The issue in more detail
The statutory deadline for employers to notify HMRC of new EMI options granted on or before 5 April 2024 fell 92 days after the date of grant. Unless the employer had a reasonable excuse for later notification, options reported to HMRC after that deadline had passed would not benefit from EMI tax advantages. For this reason, many EMI plan rules were drafted to provide that options lapsed at the end of that 92 day period, if they were not notified to HMRC within the statutory time limit, to avoid potential exposure to income tax and NIC.
However, for EMI options granted on or after 6 April 2024, the statutory deadline for notifying HMRC of the grant falls on 6 July following the end of the tax year in which the grant takes place. This easement was intended to reduce the risk of employers missing the notification deadline, and inadvertently causing options granted under their EMI plans to lose their tax-advantages.
Notwithstanding this change to the statutory notification deadline, the specific wording of some EMI plan rules still requires HMRC to be notified of new EMI options within 92 days of the grant date, because the plan rules were drafted at a time when the extended notification window was not in existence. If this is not done, the plan rules may provide that the relevant options lapse or be treated as non-tax advantaged.
However, if EMI plan rules contain such a provision, and the employer overlooks it and notifies the grant of options to HMRC only in line with the new statutory deadline (e.g., on 6 July following the end of the tax year in which those options are granted), EMI options could inadvertently lapse, or substantial unexpected income tax and NIC liabilities could arise on exercise, notwithstanding that the legislative rule still allowed for them to be notified as qualifying EMI options.
What employers should do now
Employers should review their EMI plan rules as matter of urgency and confirm whether the specific drafting of those rules requires the employer to notify HMRC of the grant of new EMI options within 92 days to prevent them lapsing or becoming non-tax advantaged.
If so, the employer should continue to notify the grant of EMI options to HMRC within 92 days (HMRC have confirmed that ‘in year’ notifications can still be made) unless and until the plan rules are amended to allow later notification by the new 6 July statutory deadline (NB: if options were granted early in the 2024/25 tax year any 92-day reporting required by the plan rules could be imminent – for example, in these circumstances an EMI option granted on 6 April 2024 would need to be notified to HMRC by 7 July 2024 to prevent it lapsing or becoming non-tax advantaged).
Please contact this article’s authors, or your usual KPMG in the UK contact, to talk through how KPMG could assist you to understand the how your EMI plan rules operate, and whether any amendments are required to ease the administrative obligations in light of the new statutory notification deadline.
