The Government has convinced the European Commission that the tax incentive on share options provided by small and medium sized companies under the Enterprise Management Incentives (EMI) is vital in enabling small firms to recruit and retain highly skilled employees.

The Government is also introducing a change to the eligibility criteria. Currently, a qualifying company's activities must be “wholly or mainly” in the UK. The criteria have been widened so that a company is only required to have a “permanent establishment” in the UK. This change will enable companies based in the UK with considerable overseas activity to avail of the EMI and recruit highly-skilled UK-based employees.

According to official statements, the European Commission approval, which will last until 2018, together with the widening of the eligibility criteria, is expected to encourage take-up amongst the high growth small firms. It will also provide a boost to the 9,000 companies that currently offer share options to their employees under EMI.

The change to the eligibility criteria will be legislated in Finance Bill 2010 and is anticipated to take effect from 6 April 2010.