ENGLAND & WALES Trends and Developments Contributed by: James Ross, Claire Matthews, Karen Bail and Marianna Vlas, Winston Taylor
ous but more broadly available regime under which options must be granted at market value and exer - cised between three and ten years after grant – made the arrangement more accessible to companies, with advisers increasingly introducing it as an alternative to EMI during the period of uncertainty. The 2022 Budget doubled the individual CSOP limit from GBP30,000 to GBP60,000 and relaxed the requirements over the share class over which options can be granted, tak - ing effect from April 2023, which enhanced its relative attractiveness during a time of uncertainty for EMI. The resolution of the EU state aid issue and the res - toration of certainty around EMI was therefore warmly welcomed, and CSOP has since returned to its more customary role as the default arrangement for com - panies that do not qualify for EMI. The most recent Budget: a significant recalibration The most recent Budget has built on this with a sub - stantial package of increases to the EMI limits, includ - ing: • the gross asset threshold for qualifying companies has been quadrupled to GBP120 million, comple - mentary to the doubled EIS gross asset thresholds; • the qualifying employee headcount threshold has been doubled to 500 full-time equivalent employ - ees; • the company-wide grant limit threshold has been doubled to GBP6 million in outstanding options; and • the exercisability period for the options has been increased from ten to up to 15 years. Taken together, these changes represent the most significant recalibration of the EMI regime since its introduction. The gross asset and headcount thresh - old increases, in particular, are sensible in policy terms: the companies most likely to benefit from EMI are broadly the same cohort as those targeted by the EIS, and an increased threshold for EMI provides room for growth and reduces the risk of a company find - ing itself able to raise EIS investment but unable to offer EMI options to its employees. These changes also signal clearly that the government views equity incentivisation as a central part of its wider strategy for supporting the UK’s growth economy.
Importantly, the government has also confirmed that amendments made to existing EMI scheme arrange - ments on or after 6 April 2026 to bring live options within the revised thresholds will not of themselves affect the tax-favoured status of those options. This is a pragmatic and welcome clarification that will spare companies and their advisers from having to conduct a detailed tax risk analysis before taking advantage of the updated regime. It removes a potentially signifi - cant practical obstacle to the prompt adoption of the new limits by companies with existing live options. Areas for further reform The government has also undertaken a call for evi - dence on how to ensure that the tax system supports and encourages entrepreneurship. The consultation document includes a number of questions that are intended to gauge the effectiveness of the EIS and VCT schemes. It is to be hoped that it will take the opportunity to simplify a relief that, while generous, has detailed and complex eligibility criteria – and many traps for the unwary. This review would also be a good opportunity to open up the EIS and EMI regimes to a wider range of busi - ness sectors. Historically, EU state aid rules resulted in companies carrying on certain excluded activities being ineligible for EIS relief. The list of excluded activ - ities has not been reviewed for some years and now looks rather out of date. The exclusion of companies carrying on financial activities, for example, was per - haps understandable when banking was considered to be in the nature of a utility, and therefore not some- thing that ought to be subsidised, but it has long sat awkwardly alongside the UK’s ambitions as a global hub for financial technology. The exclusion prevents fintech businesses from accessing these valuable reliefs, thus constraining the development of an innovative sector in which the UK is particularly strong and which is one of the most talent-intensive sectors in the UK economy. Were the government to follow through, it would represent a meaningful expansion of the reach of the EIS and EMI schemes and a significant signal to one of the coun - try’s most innovative and internationally competitive sectors.
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