Some companies may offer employees EMI share options. As long as the rules of the scheme are met, there is no income tax or NIC payable on the exercise of the option. In order to grant EMI options though certain requirements must be met. These include criteria relating to the company, the employees and the options.
The legislation which details this is found at ITEPA 2003 Schedule 5, where part 2 refers to general requirements, part 3 to qualifying companies, part 4 to eligible employees and part 5 to requirements relating to options. It is important that all of these are met. In the above query it appears that the only uncertainty is due to one of the subsidiaries being a JVC, of which an unrelated party owns the other 50%.
ITEPA 2003 schedule 5 paragraphs 10 and 11 details the meaning of qualifying subsidiaries. Broadly for a subsidiary to be a qualifying subsidiary it has to be a 51% subsidiary of the holding company, where no person other than the holding company (or another of its subsidiaries) has control of the subsidiary. At first glance it may be thought that the JVC is not a qualifying subsidiary due to only owning 50% and, as such, prevents EMI options being able to be granted. However, for the purposes of EMI schemes para 10 states –
10(1) : A company that has one or more subsidiaries is not a qualifying company unless every subsidiary of the company is a qualifying subsidiary (see paragraph 11).
10(2) : In this paragraph “subsidiary” means any company which the company controls, either on its own or together with any person connected with it.
10(3) : For the purpose of sub-paragraph (2), the question whether a person controls a company is to be determined in accordance with sections 450 and 451 of CTA 2010 (“control” in the context of close companies).
It is therefore important to first establish whether or not the holding company controls the JVC. If there is no control in any way, e.g., possessing the greater part of the share capital or the greater part of the voting power then the JVC is not actually treated as a subsidiary of the holding company in the first place and, therefore, it does not then need to be considered whether it is a qualifying subsidiary, The holding in the JVC in circumstances where there is no control over it would not disqualify the holding company from being able to grant EMI options.
Join us on our next webinar regarding “VAT supply chain fraud” on Tuesday, September 13, 2022 – 2pm – Register Here!
Please share this article with your clients
