EMI and disqualifying events

The following Share Incentives practice note provides comprehensive and up to date legal information covering:

  • EMI and disqualifying events
  • What are the consequences of a disqualifying event?
  • Consequences of a disqualifying event on a market value EMI option
  • Consequences of a disqualifying event on a discounted EMI option
  • What are disqualifying events?
  • Disqualifying events relating to the company
  • Disqualifying events relating to the employees
  • Disqualifying events relating to varying the terms of the option
  • Disqualifying events relating to the alteration of share capital
  • Disqualifying events relating to share conversions
  • More...

EMI and disqualifying events

Not realising a disqualifying event has occurred is one of the most common reasons why unintended income tax and insurance-contributions-'>National Insurance contributions (NICs) (employer’s and employee’s) may become payable on the exercise of enterprise management incentives (EMI) options. Therefore, EMI eligibility is not just based on a snapshot of the company at the time the scheme is launched but requires ongoing monitoring.

This Practice Note examines the following:

  1. what are the consequences of a disqualifying event:

    1. on a market value EMI option, and

    2. on a discounted EMI option?

  2. what are the disqualifying events:

    1. relating to the company

    2. relating to the employees

    3. relating to varying the terms of the option

    4. relating to the alteration of share capital

    5. relating to share conversions, and

    6. relating to granting options pursuant to company share option plans (CSOPs)

  3. common mistakes and misunderstandings relating to disqualifying events, and

  4. what can be done to avoid a disqualifying event

What are the consequences of a disqualifying event?

The EMI legislation lists a number of disqualifying events. Subject to a 90-day grace period, disqualifying events can result in a loss of tax relief on any increase in share values from the disqualifying event onwards.

For an explanation of the various tax reliefs available to qualifying EMI options, see Practice Notes: Enterprise management incentives (EMI)—income tax and NIC treatment of options and EMI—CGT, including entrepreneurs' relief

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