Coronavirus: Government confirms that furloughed employees will not lose EMI tax advantages

The Government has now announced it will legislate to ensure that employees with EMI options who are furloughed, working reduced hours, or taking unpaid leave as a result of coronavirus will not lose their EMI tax advantages.

Enterprise Management Incentive (EMI) options are a popular way for employers to incentivise and/or reward employees – allowing employees the right to buy shares in their employer in a very tax effective way.

However, an employee is only eligible to receive an EMI option if she is a “full time” employee, ie she is required to spend at least 25 hours per week or, if less, 75% of her working time working as an employee for the company whose shares are subject to the EMI option (or for a qualifying subsidiary of that company).

This created a real problem for employees with EMI options, who had been furloughed or had their working hours reduced as a result of coronavirus. These employees – through no fault of their own – no longer fell to be treated as “full time” for the purposes of the EMI legislation.  This is a ‘disqualifying event’ under the EMI rules, meaning those option holders would lose their EMI tax advantages unless they exercised their options within 90 days of going on furlough (assuming this was even possible under the particular terms of the employee’s option). 

The new measure will introduce a time-limited exception to the disqualifying event rules, which will be effective from 19 March 2020 until 5 April 2021.

HMRC will accept that if an employee with share options granted before 19 March 2020 would otherwise have met the EMI requirements but did not do so for reasons connected to coronavirus, the time which the employee would have spent on the business of the company (but which is actually spent on furlough) will count towards his or her working time.

Assuming the new measure passes into law, it provides welcome clarification that those affected by the coronavirus pandemic will not lose their EMI tax advantages as a result of changes to their working hours.


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