Q&As

Can a share option over newly issued shares still be an enterprise management incentives (EMI) qualifying option if a cashless exercise facility will apply to it?

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Published on LexisPSL on 10/12/2019

The following Share Incentives Q&A provides comprehensive and up to date legal information covering:

  • Can a share option over newly issued shares still be an enterprise management incentives (EMI) qualifying option if a cashless exercise facility will apply to it?

Can a share option over newly issued shares still be an enterprise management incentives (EMI) qualifying option if a cashless exercise facility will apply to it?

The use of a cashless exercise facility in conjunction with an enterprise management incentives (EMI) option must be structured with care, as the legislation governing EMI schemes requires that, at the time that the option is granted, the option must confer a right to acquire shares that are fully paid up (under paragraph 35, Schedule 5, Part 5 to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)).

HMRC guidance on EMI schemes does not give details of the intended meaning of fully paid up, but HMRC’s guidance in relation to tax advantaged share incentive plans (SIPs) states that at least the shares’ nominal value must be added to the capital of the company when the shares are issued, and that this capital amount will normally have been paid by the subscriber.

Importantly, ITEPA 2003, Sch 5 Pt 5, para 35(2) also stipulates that shares are not fully paid up for EMI purposes if there is any undertaking to pay cash to the relevant company at a future date.

It therefore appears to be the case

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