New limits on firms offering tax break on share options

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Many employees of small businesses may lose their entitlement to tax relief under Budget provisions on the enterprise management incentive (EMI) scheme, despite an announcement from the Chancellor that he would make the initiative more generous.

In Wednesday's Budget, Alistair Darling said he would extend the value of tax-free share options available to staff at small businesses qualifying for the EMI scheme, which is designed to help companies with assets worth less than £30m to attract and retain staff. Yesterday, however, it emerged that the scheme will now be off-limits to companies with more than 250 employees.

Kevin Nicholson, head of entrepreneurs and private companies at PricewaterhouseCoopers, said many small service-industry firms would be hit by the new rules. "This is especially disappointing when often such successful businesses, which have created employment, are competing for management talent among private-equity backed and listed businesses who are able to offer management the opportunity for capital growth through shares. They will now be unable to do this in a tax-advantaged way."

Matt Coward, an accountant at Blick Rothenberg, also complained that the Budget increase in the maximum permissible value of options granted under the scheme, from £100,000 to £120,000 was the first rise since EMIs were launched in 2000. "This means the value of the scheme has been diminished in real terms," he said.