14 April 2020

What is the impact for an employee holding EMI share options when furloughed?

For an employee to be eligible to be granted an EMI option, he or she must work for the company or a qualifying subsidiary for at least 25 hours per week, or, if less, 75% of their working time.

Does furlough disqualify your EMI options?

If the employee ceases to be an eligible employee or to meet the working time requirements during the currency of the EMI share options, this would constitute a disqualifying event.

That will then affect the tax treatment of an EMI option and the employee may, when they exercise those options, be subject to income tax and national insurance, although the tax position will depend on when the option is exercised and whether the option was granted at a discount to market value.

As regards an employee who has been furloughed, it would appear that technically this is likely to constitute a disqualifying event because the employee will no longer meet the requirement for committed time set out in the legislation which, as mentioned above, may impact the tax advantages of the options.

This issue has been raised with HMRC and it is hoped that, as HMRC has done in other cases, it will grant a concession so that furloughed employees do not find themselves in the position of being subject to a disqualifying event as a consequence.

We will keep you updated as further guidance is issued.

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About the Author
Patricia MacKenzie, Legal Director

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