EMI State Aid uncertainty will impact Scottish start-ups

Andrew Holloway

Andrew Holloway

Senior Manager, Entrepreneurial Taxes

Uncertainty over the renewal of EU State Aid approval for the HMRC approved Enterprise Management Incentive (EMI) scheme could impact young and entrepreneurial businesses across Scotland.

On 4 April 2018, the UK Government - via its employment related securities (ERS) bulletin - updated firms involved in establishing EMI schemes and the granting of EMI share options, that there will be a lapse period from when the existing approval expires on 6 April 2018, until a decision is reached by the EU Commission on a fresh approval.

Johnston Carmichael’s Head of Entrepreneurial Taxes, Andrew Holloway said: “As a result of this delay, those companies seeking to work through the process leading to the granting of EMI share options may face delays from 7 April until EU State Aid is approved. Options granted on or after that date may not be eligible for the attractive tax treatment that EMI share options currently benefit from, with HMRC noting that options granted when approval has not been granted may fall to be treated as non-tax advantaged options.”

EMI is an employee incentive share scheme that offers tax advantages and flexibility for eligible entrepreneurial businesses with up to 250 employees, enabling them to attract and retain key staff by rewarding them with an equity stake in the business. It has proved to be one of the UK’s most popular share plans to date and is ideal for smaller, entrepreneurial companies competing for talent, who might not be able to match the salaries paid by larger businesses.

Andrew Holloway believes any move jeopardising the initiative could have a significant impact on younger entrepreneurial companies looking to incentivise staff, particularly in Scotland’s burgeoning technology sector.

Holloway adds: “EMI is fundamental to the competitiveness of many entrepreneurial businesses in Scotland, as it levels the playing field in helping up-and-coming firms attract the best talent. The current uncertainty could present a problem for Scotland’s growing technology companies, as well as many others. While we hope and expect that approval from the EU will be provided as soon as possible, in the context of Brexit it is perhaps not a surprise that there are delays.”

Johnston Carmichael has a team of specialists dedicated to the technology sector, with expertise ranging from innovation and R&D taxes to corporate finance; and delivered £65m of tech-focused corporate finance deals last year alone.