Further update on COVID-19 and EMI
A new clause was added to the Finance Bill 2020 (which should shortly be section 107 of Finance Act 2020) in June, which provides a time-limited exception for EMI option holders who are unable to meet the necessary ‘working time’ requirements as a result of COVID-19. (See here for a discussion in our June Newsletter).
Just to recap, the legislation requires that, to qualify for the tax advantages associated with an EMI option, an employee must work at least 25 hours per week or if less, at least 75% of the employee’s working time for the company (or the group) granting the EMI option. This is the ‘working time’ requirement. If the option holder is unable to meet the ‘working time’ requirement at any time during the period in which the option holder holds the EMI option, a ‘disqualifying event’ occurs. In that case, the option holder will lose the EMI tax advantages, unless the option is exercised within 90 days of the ‘disqualifying event’.
Section 107 of the Finance Act 2020 is a welcome relief to existing holders of EMI options. They will not suffer a ‘disqualifying event’ and, therefore, will not lose the tax advantages as a result of taking unpaid leave, being furloughed or working reduced hours because of COVID-19.
Modification in the Finance Bill 2021
On 21 July, the Government announced that legislation will be introduced in the Finance Bill 2021, which will modify section 107 of Finance Act 2020 so that the limited exception in respect of the EMI ‘working time’ requirement, as described above, will also apply to the grant of EMI options.
Accordingly, employers can issue new EMI share options between 19 March 2020 and 5 April 2021 to individuals who do not meet the ‘working time’ requirement as a result of taking unpaid leave, being furloughed or working reduced hours because of COVID-19.
The extension of the limited exception to the ‘working time’ requirement to apply to the grant of EMI options is greatly welcomed. The grant of tax-advantageous EMI options should assist in boosting the morale of key workers, who would not have otherwise qualified due to COVID-19.
However, further HMRC guidance would be needed as to how this would work retrospectively as the modification will only become law when Finance Bill 2021 receives Royal Assent.
For more information, please contact JD Ghosh.