Changes to working time requirements for Enterprise Management Incentives
Published 21 July 2020
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Who is likely to be affected
Employers and individuals that participate in Enterprise Management Incentive (EMI) Share Schemes.
General description of the measure
This measure will ensure that individuals who are furloughed or who have their working hours reduced below the current statutory working time requirement for EMI as a result of coronavirus (COVID-19) will retain the tax advantages of the scheme.
Those individuals participating or wishing to participate, in an EMI scheme are required to meet the ‘working time requirement’. This means that the employee’s time committed to the company must be equal to or exceed the statutory threshold of 25 hours per week or if less, 75% of their working time.
Where employees are furloughed, working reduced hours or taking unpaid leave, they may not be able to meet the committed working time requirement, which may prevent participants from being granted new options. Finance Bill 2020 introduced a time-limited exception to the disqualifying event rules so that existing participants of EMI schemes are not forced to exercise their options much earlier than planned. This measure extends the time-limited exception to new EMI share options granted after 19 March 2020.
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.
Policy objective
This measure makes sure that EMI participants can maintain the tax advantages and reliefs as if they had continued to work for their employer as per their employment contract during the coronavirus (COVID-19) pandemic.
Background to the measure
The government has introduced support for businesses to protect jobs during the coronavirus (COVID-19) pandemic by introducing a number of measures including the Coronavirus Job Retention Scheme. Where employees are furloughed, working reduced hours or taking unpaid leave due to coronavirus (COVID-19), they may not be able to meet the committed working time requirement of EMI. This measure and legislation introduced in Finance Bill 2020 ensure that participants are not forced to exercise their options earlier than planned and, also guarantees that participants can be granted options during coronavirus (COVID-19).
Companies with assets of £30 million or less, may be able to offer EMI. Share options may be granted up to the value of £250,000 in a 3-year period. Income Tax and National Insurance contributions are not paid if an individual buys the shares for at least the market value they had when they were granted the option.
Detailed proposal
Operative date
These changes will apply for a limited period. They will have effect from 19 March 2020 and will come to an end on 5 April 2021.
Current law
Current law is included in Chapter 9 of Part 7 of Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) and Paragraphs 26 and 27 of Schedule 5 ITEPA 2003.
Proposed revisions
Legislation was introduced in Finance Bill 2020 to modify Schedule 5, Part 4 ITEPA 2003 which sets out the requirement that EMI participants must meet a minimum commitment of 25 hours working time per week or 75% of working time subject to a small list of exceptions.
An exception was introduced at paragraph 26 at subsection (3) alongside the other list of exceptions such as injury, ill-health or disability (a) to (d) as (3)(e) which will give effect to a time limited exception to the working time requirement for employees who are furloughed or working reduced hours because of coronavirus (COVID-19). Paragraph 27 of that Schedule (meaning of ‘working time’) has been modified in order to include the time limited exception, at paragraph 26 at subsection (3) to the working time requirement, for employees who are furloughed or working reduced hours because of coronavirus (COVID-19).
A modification has also been made to Section 535 of ITEPA 2003 (disqualifying events relating to employee in relation to enterprise management incentives), in order to include the time limited exception, at paragraph 26 at subsection (3) to the working time requirement for employees who are furloughed or working reduced hours because of coronavirus (COVID-19).
Legislation will be introduced in Finance Bill 2020-21 to modify section 107 of Finance Act 2020. This will ensure that employers can issue new EMI share options to individuals who have been furloughed, have taken unpaid leave or have had their working hours reduced below the current statutory working time requirement for EMI as a result of coronavirus (COVID-19).
Summary of impacts
Exchequer impact (£ million)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| nil | - | - | - | - | - |
This measure is not expected to have an Exchequer impact.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure is expected to have a positive impact on new and existing participants of EMI (usually employees) who are yet to exercise share options granted over the past 10 years. There were 34,000 individuals granted options in 2018-19. This measure will maintain tax reliefs where they may otherwise not apply due to varied employment contracts during the coronavirus (COVID-19) pandemic. Customer experience is therefore expected to improve.
Individuals are not expected to take any further action or do anything differently.
The measure is not expected to have an impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts on those in groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on businesses who operate an EMI scheme. There were around 12,000 companies operating an EMI scheme in 2018-19.
This measure allows their employees to retain tax advantages in EMI share schemes. One-off costs will include familiarisation with the change and could also include businesses training or upskilling staff as a result of this change. There are not expected to be any continuing costs.
Customer experience is expected to improve as this measure maintains tax reliefs that would otherwise be affected by varied employment contracts during the coronavirus (COVID-19) pandemic.
There is expected to be no impact on civil society organisations.
Operational impact (£ million) (HMRC or other)
The impacts on HMRC of implementing this change are negligible.
Other impacts
Other impacts have been considered and none has been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact the Income Tax Structure and Earnings Team by email: incometax.structure@hmrc.gov.uk