Government settles concerns about impact of furloughing EMI option holders

HMRC has faced a flurry of questions about furloughed employees during the coronavirus pandemic. In particular, questions relating to the impact of furloughing on holders of enterprise management incentives (“EMI”) options.

What was the issue?

For an employee to qualify for income tax relief on his or her EMI options, the employee must continue to meet the working time requirement prescribed by the EMI legislation.  As a result, companies that were about to grant EMI options or had granted EMI options were concerned that furloughed employees who held EMI options would lose income tax relief due to a disqualifying event (i.e. not or no longer meeting the working time requirement for a continuous period of 90 days).

What has the government said?

After much lobbying, including by the HLaw team, the government has tabled amendments to the Finance Bill 2020.  The amendments ensure that:

any time when an employee is not required to work for reasons connected with COVID-19 will be counted as ‘working time’ (when calculating the employee’s committed time before granting an EMI option); and

any time when an option holder is not required to work for reasons connected with COVID-19 will be counted as ‘reckonable time’ (when determining whether a disqualifying event has occurred because an EMI option holder no longer meets the working time requirements).

No EU state aid approval documents have been published by the EU Commission so far, but it is expected that the amendments will be subject to EU state aid approval.

The changes made to the Finance Bill 2020 put any doubts to rest (after having waited four months!) as regards the qualifying status of EMI options held by employees who are currently furloughed.

This piece was researched and prepared by Amir Kursun with input from Jeremy Glover.

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