SHARE SCHEMES
The government has tabled a new clause for inclusion in Finance Bill 2020 to preserve Enterprise Management Incentive (EMI) scheme incentives for individuals being furloughed or working reduced hours due to coronavirus. What do you need to know?
What’s an EMI scheme?
It’s a share scheme that allows employers to grant tax-efficient share options to key employees, as a reward for their efforts, to retain and incentivise them. The scheme is generally used by small trading companies.
Concerns
As with any share scheme that offers tax advantages, strict conditions must be met to qualify for relief. Once an EMI option has been granted, the employee must spend a minimum amount of time on the business of the company each tax year. If this condition isn’t met, the employee has 90 days to exercise their EMI options, or lose the income tax and NI relief. In the current times there is clearly a risk that furloughed staff could lose valuable EMI tax reliefs if they spend too much time away from the business.
Solution
Legislation is being introduced to give effect to a new time limited exception to the working time requirement for employees who are furloughed or working reduced hours because of coronavirus. This means that employees will not be forced to exercise their options much earlier than planned, which would defeat the object of setting up an EMI scheme. HMRC will accept that, from 19 March 2020, if an employee with share options granted before that date would otherwise have met the scheme requirements but did not do so 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.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.