Update on furloughed employees and EMI Share Options – published 3 July 2020:
The government has now tabled an amendment to the Finance Bill 2020 which will receive the Royal Assent later this summer to provide that furlough does not affect the working time calculations for EMI Share Options.
The amendments will provide that:
- in calculating the employee’s committed time for granting an EMI option, any time when the employee is not required to work for reasons connected with Covid-19 counts as working time.
- in determining whether a disqualifying event has occurred because an EMI option holder no longer meets the working time requirements, any time which the option holder is not required to work for reasons connected with Covid-19 is counted as reckonable time.
It is thought the amendment may have been subject to EU state aid approval, but so far the Commission has not published an approval document.
The content below was originally published on 14 April 2020:
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.