Enterprise Management Scheme (“EMI”) share options are the most popular type of share option for SME companies. Although EMI schemes are relatively straightforward to adopt and operate, the schemes do have a number of qualifying conditions, one of which is that employees work full time (25 hours a week) for the company (or group) granting the options or for at least 75% of their committed working time in the case of part time employees.
Furlough raised the question of whether furloughed staff would meet the qualifying employment test and consequently loose the tax advantaged status of their share option because furloughed staff were not being required to work.
Legislation has been proposed for inclusion in the Finance Act 2020 to remove this problem. Not being required to work for reasons connected with the coronavirus disease will not be treated as a disqualifying event. The exemption is time limited and only applies if the furlough or other coronavirus non-working requirements occurs between 19 March 2020 and 5 April 2021. This means the tax advantaged status of EMI options for staff on furlough is maintained in relation to the working time requirement for the periods that the option holders are furloughed.
This is very welcome news for employees on furlough holding EMI options and companies operating EMI schemes. Although an exemption to deal with coronavirus was expected by share scheme advisers, confirmation of the proposed legislation removes a concern for advisers and their clients.
For further information on EMI options and share options generally, please contact Andrew Evans.