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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

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HM Revenue & Customs
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Enterprise Management Incentives (EMI): Taxation of EMI options: Disqualifying events – alterations of share capital

An alteration to the share capital of the company whose shares are under option is a disqualifying event if it:

  • affects (or would but for some other event affect) the value of the shares, and
  • consists of or includes:

 

  • the creation, variation or removal of a right relating to any shares in the company,
  • the imposition of a restriction on any of these shares, or
  • the variation or removal of a restriction to which these shares are subject,

and whose effect is that the requirements of Schedule 5 would no longer be met in relation to the options. (Section 536(1)(b) ITEPA)

There will also be a disqualifying event if the alteration to the share capital of the company whose shares are under option

  • affects (or would but for some other event affect) the value of the shares, and
  • consists of or includes:

 

  • the creation, variation or removal of a right relating to any shares in the company,
  • the imposition of a restriction on any of these shares, or
  • the variation or removal of a restriction to which these shares are subject,

 and

  • the change increases the value of the shares, and
  • is not made for commercial reasons, or
  • is made for the purpose of increasing (or one of the main purposes is to increase) the market value of the shares that are subject to the option (Section 536(1)(c) ITEPA).