The Enterprise Management Incentive scheme (EMI) is a tax advantaged share option scheme for employees. The key benefits of the scheme are that any employee tax liabilities on share options granted under the EMI can be deferred until the shares are sold and that any profit can be liable to capital gains tax, rather than at higher income tax rates.
To qualify for these tax advantages EMI options have to meet a number of qualifying requirements, one of which is that participating employees have to work “full-time” in their employer’s business. This means that the employee must, throughout the life of the option, work for their employer for at least 25 hours per week or, if less, for at least 75% of their working time.
Covid-19 has made it difficult for some employees to continue to meet this test because of furlough, unpaid leave or reduced working hours. HMRC has announced, however, that where, after 19 March 2020, an employee is unable to meet the full-time working requirement because of factors related to Covid-19, the time that the employee would have spent working for the company will count towards their working time thus enabling the options to continue to benefit from their advantageous tax treatment.
Both employers and employees must keep evidence to show that there is a link to Covid-19 for options to remain qualifying.
The change will (unless further extended) apply for a limited period between 19 March 2020 and 5 April 2021 in respect to both options issued before 19 March 2020 and since that date.
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