When UK entities choose to establish an enterprise management incentive (EMI) stock option plan, there are two key steps that are often overlooked. These are:
- registering the EMI share scheme with HMRC before implementation; and then
- notifying HMRC of all EMI options granted within 92 days of the grant date.
Businesses often establish the legal form of the stock option plan, apply to HMRC to have their valuation checked, issue the relevant documentation to the employees, but then fail to comply with the two requirements mentioned above.
Stock options granted under an EMI arrangement that are not notified to HMRC within 92 days of the grant date will not qualify as EMI tax advantageous stock options.
These stock options will automatically be deemed as non-qualifying stock options for UK tax purposes, and any gain from grant to exercise will be subject to income tax and social security for the employee - and social security for the employer.
We have seen several companies pay their advisors for the legal form of the plan, only to realise too late that there are a number of other components to granting tax-advantaged options in the UK.