The UK Government has confirmed that individuals who are furloughed or have their working hours reduced below the current statutory working time requirement for an Enterprise Management Incentive scheme (EMI) as a result of COVID-19 will retain the tax advantages of the scheme.
In order to benefit from the tax advantages of an EMI scheme, individuals receiving share options in a company are required to work for the relevant company for 25 hours per week or 75% of their working time – known as the 'working time requirement'. Ordinarily, dropping below this would be deemed a 'disqualifying event' for the purposes of an EMI scheme, and cause an option-holder to lose the EMI tax benefits associated with their share options. Since the start of the pandemic, there has been a concern that individuals placed on furlough or who have had their working hours reduced as a result of the impact of COVID-19 would inadvertently have this effect.
The UK Government has now addressed this concern by including an exception to the working time requirement in the relevant legislation. Alongside other existing exceptions, such as injury, ill-health or disability, this also now includes 'employees who are furloughed or have their working hours reduced because of coronavirus'. A modification has also been made to prevent such a change leading to a 'disqualifying event'. In addition, legislation will be introduced to ensure that companies can issue new EMI share options to individuals who have been furloughed, taken unpaid leave or had their working hours reduced as a result of COVID-19.
The changes will have effect from 19 March 2020 and until 5 April 2021, and HMRC will have the power to extend the exception if necessary.