UK secures long-term European backing for key small business tax break
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Issued 20 August 2009
The Government has secured the long-term future of a tax break designed to
help small, high-growth companies to recruit and retain highly skilled employees
by gaining State Aid approval from the European Commission.
The Government convinced the European Commission that the Enterprise
Management Incentives (EMI), which provide a tax break on share options offered
by small and medium sized companies to their employees, play a crucial role in
enabling small firms to recruit and retain the highly skilled employees they
need to thrive.
The Government is also widening the eligibility criteria so that companies
based in the UK which carry out considerable overseas activity can use EMI to
recruit key UK-based staff.
The certainty provided by the granting of European Commission approval –
which lasts until 2018 – together with the new eligibility criteria will provide
a boost to the 9,000 companies that currently offer share options to their
employees under EMI, and is likely to encourage take-up amongst the high growth
small firms that will play a vital role in the return to growth in the UK
The Economic Secretary to the Treasury, Ian Pearson, said:
“This is excellent news for small and medium-sized companies, particularly at
a time when their success will be crucial to economic recovery. Long-term State
Aid approval of EMI provides certainty over the future of the scheme, whilst the
relaxation of eligibility requirements will help SMEs with substantial
international activities to recruit highly-skilled UK-based staff. We are
confident that EMI will continue to act as a valuable tool in ensuring the
growth of SMEs in the UK.”
1. Enterprise Management Incentives enable small and medium sized companies
to offer their employees options over shares worth up to £120,000. Employees
are able to buy shares in the company at a pre-agreed price. If the value of
the shares increases, employees are able to purchase them at the lower
pre-agreed price. Under standard tax treatment, the employee pays income tax
and national insurance contributions on the gain, whilst the employer is subject
to national insurance contributions. Under EMI, both employees and employers
are exempt from this tax liability.
2. In 2007/08, the latest year for which data is available, 2,830 companies
issued share options under EMI to 26,400 employees. The initial value of the
shares over which share options were granted was £300m. The total number of
companies operating EMI was 9,110. The tax relief granted in 2007/08 under EMI
amounted to £240m.
3. The Government has been engaged in negotiations with the European
Commission to meet its legal obligation to demonstrate that the rules governing
EMI comply with the appropriate guidelines and treaties regarding the provision
of State Aid. The Commission has now agreed to grant EMI State Aid approval
until April 2018.
4. A single change to EMI will be introduced. The current rules require a
qualifying company’s activities to be "wholly or mainly" in the UK. This will
be relaxed so that a company is only required to have a “permanent
establishment” in the UK. This will help UK SMEs with substantial overseas
activities to recruit highly skilled UK-based staff. It will also allow UK
tax-paying staff of overseas SMEs that have a permanent establishment in the UK
to benefit from EMI. Employees of overseas SMEs who are not subject to UK tax
will not be able to benefit from the tax relief offered by EMI.
5. The change will be legislated in Finance Bill 2010 and is anticipated to
take effect from 6 April 2010.
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Article Published/Sorted/Amended on Scopulus 2009-08-23 17:28:30 in Tax Articles