ETASSUM54090 - Enterprise Management Incentives (EMI): Requirements relating to options: Changes to grant of options from 6 April 2023 - effect on options granted before 6 April 2023

Schedule 5 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)

The changes detailed in ETASSUM54080 also apply to EMI options granted before 6 April 2023, but which had not as at 6 April 2023 been exercised. The changes do not apply to options granted before 6 April 2023 and which can no longer be exercised, for example because they have lapsed or been cancelled, or because they were exercised before this date.

This means that options which an employer previously regarded as non-qualifying for the purposes of EMI may be brought back into the scope of the relief. In this scenario, the employer may find that a limit in paragraphs 5, 6 or 7 of Schedule 5 ITEPA 2003 would otherwise be exceeded.

· Paragraph 5 relates to the maximum individual limit of £250,000 and further guidance can be found at ETASSUM51020;

· Paragraph 6 relates to the three year limit and further guidance can be found at ETASSUM51050;

· Paragraph 7 relates to the maximum company limit of £3 million and further guidance can be found at ETASSUM51060.

In order for the employer company to determine which options continue to qualify for relief under EMI, the employer company must make arrangements where a maximum entitlement or threshold would otherwise be exceeded.

The arrangements determine which of the relevant options or extent of those options will be within the maximum and qualify as EMI options.

The employer company must do this on or before 6 July following the end of the first tax year in which the first relevant option is exercised. However, an employer company may wish to make arrangements to protect the current position that they were in prior to the changes introduced from 6 April 2023.

Arrangements can be determined by the employer company at their discretion, but must be in writing. The arrangements that the employer company makes must set out the criteria for making the determination, and these arrangements must be made available to whoever will be affected by the determination. This is likely to be each employee with a relevant option at 5 April 2023.

When the employer company makes arrangements for a determination, HMRC would consider that an apportionment that achieves the maximum tax advantage is acceptable.

Arrangements for a determination will not require HMRC’s approval, but will need to be within the parameters set out in the legislation. Nor does the determination need to be notified to HMRC, although it should be available for inspection by, or submission to, HMRC on request.

Failure to make arrangements

The employer company must make the relevant arrangements on or before 6 July following the end of the first tax year in which the first relevant option is exercised.

If the employer company fails to make arrangements by this date, then the relevant options which are in scope of EMI will be determined in the chronological order in which the options were granted.

Where two or more relevant options were granted at the same time, an apportionment between those options will be required.