Furloughed employees’ EMI benefits to be protected by Finance Bill amendment

SMEs have been boosted by a new Finance Bill clause which states furlough does not affect working time calculations for enterprise management incentives (EMI) options.

On 26 June 2020, the government tabled an amendment to the Finance Bill 2020 to amend section 535 and Schedule 5 of the Income Tax (Earnings and Pensions) Act 2003. And, three days later, the government published an explanatory note and tax information and impact note for the new clause. 

The new clause amends the rules relating to commitment of working time and disqualifying events for enterprise management incentives (EMI) options. 

The amendments are intended to ensure that:

1. When calculating the employee's committed time before granting an EMI option, any time when the employee is not required to work for reasons connected with COVID-19 is counted as working time.

2. When determining whether a disqualifying event has occurred because an EMI option holder no longer meets the working time requirements, any time when the option holder is not required to work for reasons connected with COVID-19 is counted as reckonable time.

The publication of this clause will come as a relief to many practitioners and EMI companies, as it should give certainty regarding the qualifying status of EMI options held by employees who are currently furloughed.

Last month corporate solicitor Abby Watson urged the government to provide clarity around this issue. ‘Currently there is a risk that an employee that holds EMI options and who is put on furlough leave does not meet the commitment to working time set out in paragraph 26 of Schedule 5 to Income Tax (Earning & Pensions) Act 2003', she warned.

‘A failure to meet this would be a “disqualifying event” under the legislation. This issue has been raised with HMRC, who have confirmed they are currently considering the matter. It is hoped that they will publish a concession that placing an employee on furlough leave does not trigger a disqualifying event.’

Bur commenting on the new legislation she said yesterday: ‘This is good news for existing EMI option holders and for any companies that are wishing to grant new EMI options to employees who may currently be furloughed or working reduced hours due to the impact of COVID-19.’

Find out more about EMI schemes and other employee share schemes to benefit staff in your business.