HMRC have announced legislative measures designed to help individuals participating in an enterprise management incentive (EMI) share option scheme who might have been affected by the coronavirus pandemic maintain the tax advantages and reliefs that EMI share schemes enjoy.
EMI is a type of Government-approved employee share option scheme that enjoys favourable tax treatment. EMI schemes are mainly used by small to mid-sized businesses looking to grant share options to key employees in a tax efficient manner, as a reward for their efforts within the business and/or to retain and incentivise key staff. In the 2018/19 tax year HMRC estimated that approximately 34,000 individuals were granted EMI options and there were around 12,000 UK companies operating an EMI scheme.
EMI schemes have a strict legislative criteria which both the company and employee(s) need to meet in order to qualify for the tax benefits. In short these are:
Company qualifying criteria
Employee qualifying criteria
What are the measures being introduced?
As set out above one of the qualifying criteria for individuals wishing to participate in an EMI scheme is the “working time requirement”. This stipulates that the employee’s time committed to the company must be equal to or exceed the statutory threshold of 25 hours per week or if less, it must constitute 75% of their overall working time.
During the coronavirus pandemic many businesses have had to ask employees to take unpaid leave, reduce their hours or have placed employees in the Government’s furlough scheme. As a result the working hours of many individuals will have reduced below these statutory thresholds.
HMRC have announced a measure which will modify the existing EMI legislation and provide a time limited exception to the working time requirement for employees who are furloughed or have had their working reduced hours because of coronavirus. Furthermore legislation will be introduced in Finance Bill 2020-21 which will ensure that employers can issue new EMI share options to individuals who have been furloughed, have taken unpaid leave or have had their working hours reduced below the current statutory working time requirement for EMI as a result of coronavirus.
For those individuals who might have contracted coronavirus and been absent from work due to illness it should be noted that the existing EMI legislation already contains an exemption from the working time requirement where an individual has been unable to work because of ill health.
These changes will apply only for a limited period and will have effect from 19 March 2020 and will come to an end on 5 April 2021.
Richard Turner comments:
"This legislative action will be welcome news to those employees who are participating in their company’s EMI scheme and who might have been furloughed or had to reduce their working hours due to the coronavirus pandemic. The changes will also help ensure that businesses can continue to look to create new EMI schemes and incentivise their staff through the grant of share options."
If you require any further assistance or have questions regarding employee share schemes please do not hesitate to get in touch with a member of the team.
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