On 26 June 2020, the government published further amendments and new clauses to the Finance Bill 2020, and there is good news for the holders of EMI share options granted before 19 March 2020.

Under new clause 32 of the Finance Bill, an EMI "disqualifying event" (and a possible tax liability) will no longer arise when an EMI share option holder is put on furlough, reduced hours or takes unpaid leave because of COVID-19 and as a result no longer satisfies the statutory EMI working time requirements. These modifications to the EMI legislation mean that EMI option holders will not lose the tax relief available under the EMI legislation as a result of being on furlough etc. and as a consequence not satisfying the working time requirement. 

Unfortunately, for those companies wishing to go ahead and grant new EMI options to employees on furlough there still remains some uncertainty as to whether such employees meet the statutory working time requirements at the time of grant. The amendments proposed under the Finance Bill 2020 (and the accompanying explanatory notes) state that the modifications to the EMI legislation "apply for the purposes of determining whether a disqualifying event occurs or is treated as occurring". No mention is made of the modifications also applying for the purposes of determining whether an employee is eligible to be granted a qualifying EMI option in the first place. We are seeking further clarification on this point and will issue a further alert once the position becomes clearer. In the meantime,  if you are thinking of granting new qualifying EMI options to employees on furlough we advise a cautious approach and either seek advance assurance from HMRC or, if possible, delay the grant until HMRC has clarified the position.

Background

It is a statutory requirement that employees participating in an EMI share option scheme are required to spend on average at least 25 hours a week or if less, 75% of their working time working for the business of the company that granted the EMI option, or the business of that company's group. If the holder of an EMI share option subsequently fails to meet the statutory working time requirement, that will constitute a 'disqualifying event' and if the option is not exercised within 90 days of that disqualifying event occurring, tax relief will be lost. 

Amendments to the Finance Bill 2020

New clause 32 to the Finance Bill 2020 provides that a disqualifying event will no longer arise where an EMI share option holder is "not required to work for reasons connected with coronavirus disease". This would include where an EMI option holder fails to meet the statutory working time requirement because they have been put on furlough, reduced hours or unpaid leave as a result of COVID-19. In this case, the time that they would have spent on the business will count towards the statutory working time requirement and their EMI option shall continue to subsist as normal.

It should be noted that the modifications to the EMI legislation are time limited and will initially only apply during the period from 19 March 2020 to 5 April 2021 (although there is facility to extend to 5 April 2022) and (per HMRC guidance) to options granted before 19 March 2020.