Q&As

If the performance target on an enterprise management incentives (EMI) option is waived, will the option still be EMI qualifying?

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Published on LexisPSL on 20/02/2020

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

  • If the performance target on an enterprise management incentives (EMI) option is waived, will the option still be EMI qualifying?

If the performance target on an enterprise management incentives (EMI) option is waived, will the option still be EMI qualifying?

Although variations to the terms of an enterprise management incentives (EMI) option can be a disqualifying event, this will only be the case where the variation either increases the market value of the shares under option, or results in the requirements of Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003 no longer being met in relation to the option—neither of which should be relevant in this case. For further detail, see Practice Note: EMI and disqualifying events.

Nevertheless, the waiver of a performance target could cause difficulties if HMRC consider that there has been a change to the fundamental terms of the option which has given rise to the grant of a new option right. If the new option is unable to meet EMI requirements then this could mean that the waiver has indeed triggered a loss of EMI status.

This potential issue arises because HMRC take the view that any change to the fundamental terms of an EMI option (whether or not it increases the value of the shares) that improves the rights of an option holder which is not ‘de minimis’ will be treated as the grant of a new right at the date the change is made. The fundamental terms of

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