New HMRC guidance on impact of COVID-19 on share schemes – but what about EMIs?

What impact will COVID-19 have on tax-advantaged employee share schemes?

On 8th June, HMRC published ‘Employment-related securities bulletin 35’ which addresses a number of issues affecting tax-advantaged employee share schemes that have arisen as a result of the COVID-19 pandemic.

Whilst this guidance has provided some much-welcomed clarity to some of the questions surrounding ‘save as you earn’ (SAYE), ‘share incentive plans’ (SIP) and ‘company share options plans’ (CSOP) arrangements, the position is still unclear on the impact of COVID–19 on existing and new EMI (enterprise management incentive) arrangements.

EMI: What are the concerns?

There are two main concerns: The first is whether new EMI options can be granted to employees who are furloughed or otherwise working reduced hours or on unpaid leave.  The second is whether employees holding EMI options cease to meet the working time requirements when they are furloughed under the Coronavirus Job Retention Scheme.

For an employee to be eligible to be granted EMI options, she has to meet the ‘working time’ requirement which means that she must work at least 25 hours per week or, if less, 75% of her working time with the company that is granting the EMI option.

The ‘working time’ requirement not only needs to be met initially in order to be eligible to be granted an EMI option but must continue to be met throughout the period the EMI option is held. A failure to meet this requirement would result in a ‘disqualifying event’ and as a consequence the option would cease to qualify as an EMI option, resulting in a loss of beneficial tax treatment from the date of the event.  Depending on the terms applicable to an outstanding option, such an event could result in the option lapsing.

On a strict interpretation of the legislation, an employee who has been furloughed i.e. who undertakes no work for the company, would fail to satisfy the ‘working time’ requirement. The latest HMRC bulletin provides little comfort here – it only confirms that HMRC are still exploring the issues raised by stakeholders and will provide an update as soon as possible.

While we await guidance from HMRC on this point (which we understand is being discussed between HMRC and the European Commission), we can only hope that HMRC will ultimately take a pragmatic approach, so that any time spent either not working, or working reduced hours during this pandemic as a result of the pandemic is deemed to be time that meets the working time requirement. In the meantime, incentive arrangements remain high on our clients’ agendas as they consider ways to keep their teams motivated and engaged and ensure their interests are aligned with shareholders at this challenging time.


This information is for general information purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Please contact us for specific advice on your circumstances. © Shoosmiths LLP 2024.



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