On 22 July 2020, HMRC published Employment Related Securities Bulletin 36 (July 2020), which covers the impact of coronavirus on enterprise management incentive (EMI) options.
The working time requirements set out in the EMI legislation are being amended in the light of the pandemic. Click here for our accompanying Insight.
The changes are intended to ensure that existing EMI option holders are not forced to exercise their options earlier than planned (by creating a new "disqualifying events" exception) and to enable new EMI options to be granted to employees who are on furlough or working reduced hours.
The bulletin sets out HMRC's view on the changes, confirming that it:
- will accept that, from 19 March 2020, if an employee would otherwise have met the requirements but did not do so for reasons connected to coronavirus, the time which they would have spent on the business of the company will count towards their working time;
- will disregard the reduction in working time as a disqualifying event if it is for reasons connected to coronavirus; and
- will accept furlough, working reduced hours and unpaid leave as reasons for which an employee may have been unable to meet the working time requirements.
HMRC provides some examples of what it will accept in relation to working time for such employees, and notes that evidence must be kept to show that there is a link to the coronavirus pandemic. This is an important record-keeping point for employers.
Full-time equivalent employees
The other conditions for EMI must still be met, including the requirement that EMI options can only be granted by qualifying companies that have fewer than 250 full-time equivalent employees.
The bulletin confirms that where EMI options are granted and some employees are on furlough, working reduced hours or on unpaid leave due to coronavirus, they must still be counted for the number of employees' requirement as if they were working the hours they would otherwise have been required to work if it were not for the coronavirus pandemic.
Views on deadlines
HMRC has also confirmed its current view on employment-related securities deadlines for registering new schemes, filing returns and notifying new EMI options. It recognises that some employers may struggle to meet their obligations due to the pandemic.
It advises that employers should try to meet their obligations (such as registering new schemes, filing annual returns and notifying new EMI options) as soon as they can. However, if an employer cannot, and this is due to coronavirus, HMRC may consider that as a reasonable excuse for missing some tax obligations. An employer will need to explain how it was affected by coronavirus when making an appeal.
Clearly, wherever possible companies should seek to meet all HMRC deadlines to avoid the need to run such an argument.
Osborne Clarke comment
Employment-related securities bulletins are a valuable resource for keeping employers and advisers updated on developments in share plans.
This bulletin is a welcome clarification on how HMRC will view the changes to the EMI working time requirements during the pandemic. Ideally, HMRC's manuals would be updated to reflect the bulletin and provide further guidance (particularly given the unusual way in which the legislative changes are being made).
It is helpful that HMRC has widened its position to include notifying the grant of EMI options as one of the deadlines that may be missed due to the pandemic, although clearly companies should endeavour to make the necessary notifications within 92 days.
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.