Good news for both employees holding share options under EMI scheme and their employers: the government has published draft legislation to ensure employees whose working patterns have been affected by the Covid-19 pandemic will not be at a disadvantage under the EMI rules.
The changes are set out in new draft clauses for inclusion in Finance Bill 2021 that were published on 21 July, to ensure that EMI options granted before 19 March 2020 will remain qualifying if an employee is unable to work because of Covid-19 and has been placed on:
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Furlough
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Working reduced hours
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Unpaid leave
Employers and employees must keep evidence that the employee has reduced her or his hours because of Covid-19.
Employees who currently participate in an EMI scheme and have been unable to meet the working time requirements of at least 25 hours per week - or, if less, at least 75% of their working time because of reasons relating to the Covid-19 pandemic - would usually be treated as having been subject to a “disqualifying event”, resulting in a loss of tax benefits and, depending on the option terms, the loss of the option itself.
In welcome news, HMRC have clarified they accept that from 19 March 2020, the time which an employee would have spent on the business of the company, but for Covid-19, will count towards their working time. This means that HMRC will disregard the reduction in working time, meaning that employees may still be granted EMI options and, for existing option holders, HMRC will not treat their reduced working time as a disqualifying event.
Full time equivalent (FTE) employees
EMI options can only be granted to companies with fewer than 250 FTE employees. Where options have been granted and some employees are on furlough, working reduced hours or on unpaid leave due to Covid-19, they must still be counted as if they were working their normal hours.