EMI and CSOP Changes: Budget Boost

EMI and CSOP changes: Introduction

The recent budget has brought forth unexpected positive news for private companies with surprising announcements regarding EMI and CSOP changes

The first boost was delivered to those using Enterprise Management Incentive (EMI) plans.

The announced changes significantly cut down on paperwork obligations, making it easier for companies to sell businesses operating EMI plans.

Furthermore, HMRC has confirmed adjustments to the less common Company Share Option Plan (CSOP) for private companies.

These changes were hinted at last autumn, but the published draft legislation is more generous than anticipated.

EMI Plans: Key Changes

Three main changes have been announced for EMI plans:

1. Working Time Declaration:
   • Previously, an employee had to certify that they worked at least 75% of their time for the group to receive an EMI share option. And also maintain full tax benefits. HMRC has now removed the need for a working time declaration from 6 April 2023, effectively making this change retrospective.
2. Restrictions:
   • Companies were required to notify employees about restrictions on their shares when granting EMI options. However, this requirement has often been overlooked or neglected. HMRC has removed this requirement from 6 April 2023 for new option. It has also retrospectively removed it for options granted before that date.
3. Time of Notification of Option:
   • An EMI share option must be notified to HMRC within 92 days of its grant. But, many options are not notified within that period. From 6 April 2023, EMI options will need to be notified within the timeframe for completing the company EMI share option annual return, i.e., by 6 July of the following tax year. This change is not retrospective and will only apply from 6 April 2024.

CSOPs: Confirmed Changes

Two significant changes have been confirmed for CSOPs:

1. Increase in Limit to £60,000: The limit on the value of shares that can be placed under option in a CSOP will increase from £30,000 to £60,000 from 6 April 2023. This doubling of the limit may make private companies consider using this scheme more often, especially those that can no longer use EMI, cannot use EMI due to their sector, or have over £30 million in gross assets or more than 250 employees.
2. Use of Employee-only Class of Shares: Unlike the EMI share option scheme, it has not been possible to operate a CSOP over a class of shares exclusively for employees. From 6 April 2023, this requirement will no longer apply to the majority of the class of shares used for a CSOP. This change applies to new option grants and "rolled over" options, allowing greater use of CSOPs in private companies.

Conclusion

These changes to EMI plans and CSOPs simplify the processes and enhance their benefits for private companies.

With reduced paperwork and more generous legislation, these schemes are now more accessible and attractive to a wider range of businesses.

If you have any queries about the EMI and CSOP changes announced at the recent Budget, or any other tax matters, then please get in touch.