ETASSUM57080 | Enterprise Management Incentives (EMI): Taxation of EMI options: Disqualifying events relating to the relevant company

Section 534 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)

The following are disqualifying events relating to the relevant company, i.e. the company whose shares are under option.

Loss of independence is a disqualifying event except where there is a company reorganisation and a qualifying replacement option is granted. If the relevant company becomes a 51% subsidiary of another company, this is not a disqualifying event if a replacement option is granted that satisfies the EMI legislation (Section 534(2) ITEPA).

If the relevant company no longer meets the trading activities requirement it is a disqualifying event.

A company may have originally met the trading activities requirement because it was preparing to carry on a qualifying trade when the option was granted. There is a disqualifying event if these preparations come to a halt, or if the company (or in the case of a parent company of a group, the relevant group company) does not begin to carry on the qualifying trade within two years of the date of grant of the EMI options (Section 534(4) ITEPA).