On 21 July 2020, HMRC published draft legislation proposing further changes to the working time requirements for enterprise management incentive (EMI) options. The changes are intended to allow new EMI options to be granted to employees who are furloughed or whose working hours are reduced, due to coronavirus.
As set out in our recent Insight, the Finance Act 2020 (which has now received Royal Assent) introduced a time-limited exception to the disqualifying events rules for EMI options. This ensures that a "disqualifying event" will not occur where an employee holding existing EMI options is furloughed, takes unpaid leave or works reduced hours due to the coronavirus pandemic.
However, some uncertainties remained, and HMRC has provided clarification by publishing further legislation to deal with new EMI grants and its views on the changes.
Proposed further change to EMI rules
A further draft clause was published on 21 July 2020, for inclusion in next year's Finance Bill.
The clause extends the time-limited disqualifying events exception to new EMI options granted on or after 19 March 2020.
This further change to the EMI legislation is intended to ensure that employers can issue new EMI options to individuals who have been furloughed, taken unpaid leave or had their working hours reduced below the normal EMI working time requirement as a result of coronavirus.
Clarifying that the changes are intended to apply to both existing and new EMI options, the policy paper issued with the draft clause confirms: "HM Revenue and Customs will accept that, from 19 March 2020, if an employee who is with or to be issued with qualifying share options has met or would meet the requirements at the time of grant but for reasons connected to the coronavirus pandemic, the time which they would have spent on the business of the company will count towards their working time."
The changes will apply for a limited period from 19 March 2020 until 5 April 2021 (unless extended for a further year by regulations).
On 22 July 2020, HMRC published Employment Related Securities Bulletin 36 (July 2020) which covers (among other things) HMRC's view on the impact of coronavirus on EMI options and includes examples on working time. (Click here for our accompanying Insight on the bulletin.)
Osborne Clarke comment
Our recent Insight set out some points to watch in relation to the disqualifying events changes, and the new draft clause and guidance will provide some reassurance where new EMI options have been or are to be granted to furloughed employees.
The manner in which the legislative changes are being made is unusual (through two separate Finance Bills, with a gap of several months between each receiving Royal Assent). The disqualifying events exception is now in force (whereas the draft clause extending the measure to new EMI options – albeit retrospectively – remains subject to consultation and Royal Assent of Finance Bill 2021).
However, the policy paper and bulletin are helpful in clarifying HMRC's view that qualifying companies can grant new EMI options to furloughed employees.
Please get in touch with your usual Osborne Clarke contact or one of the experts below if you have any queries or would like to discuss further.