Where options granted to an employee qualify under the Enterprise Management Incentive (‘EMI’) scheme, significant tax advantages are to be had. Principally, a charge to Income Tax on exercising the option is replaced, in whole or part, by a much smaller charge to Capital Gains Tax that arises only on the disposal of the shares.
However, one of the requirements under the EMI scheme is that the option-holder must be (and at all times remain) required to work full-time for the employing company (subject to holidays and the ‘thousand natural shocks that flesh is heir to’ such as pregnancy, injury, ill-health etc).
What the parliamentary draftsman failed, not unreasonably, to contemplate when the law was being drafted 20 years ago was the possibility that employees might fail to meet the requirement (and thereby disqualify their options from the EMI scheme) by reason of being furloughed as the result of a global pandemic.
Happily the government have tabled a new clause to be inserted into the current Finance Bill, the effect of which will be that an employee who is furloughed or on short time because of coronavirus will be treated for EMI purposes as continuing to work his or her normal hours.
The measure is a temporary one lasting in the first instance until 5 April 2021. Worryingly, the Treasury will have the power to extend it by regulation until 5 April 2022: let us all hope that the further extension does not prove necessary.
For more information, please get in touch with your usual BKL contact or use our enquiry form. We also have details of the furlough scheme (aka the Coronavirus Job Retention Scheme) here.
Above all, stay safe and well.