Enterprise Management Incentives extension of time-limited exception to working time requirements
Published 3 March 2021
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Who is likely to be affected
Employers and individuals that participate in Enterprise Management Incentives employee share schemes (EMI).
General description of the measure
This measure will ensure that, until 5 April 2022, 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 access to the scheme’s tax advantages.
This will apply both to existing participants of EMI schemes and in circumstances where new EMI share options are being granted.
Policy objective
This measure ensures that EMI can, throughout the coronavirus pandemic, continue to meet its policy objective of helping small and medium-sized enterprises (SMEs) recruit and retain key employees.
It enables participants to maintain the tax advantages and reliefs of EMI as if they had continued to work for their employer as per their employment contract during the coronavirus pandemic, in cases where employees may otherwise be unable to meet the working time requirements.
Background to the measure
The government has introduced a range of support for businesses to protect jobs during the coronavirus pandemic. Where employees are furloughed, working reduced hours or taking unpaid leave due to coronavirus, they may not be able to meet the committed working time requirement of EMI.
Legislation was introduced in Finance Act 2020 to ensure that participants are not forced to exercise their options earlier than planned and, also guarantees that participants can be granted options during coronavirus. Finance Bill 2021 will legislate to ensure that new EMI options issued by employers to employees who have not met the working time requirement as a result of coronavirus will be qualifying EMI options.
This measure will extend the time-limited exception until 5 April 2022 given the ongoing nature of the pandemic and the impact on working patterns.
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 2022.
Current law
Current law is included in Chapter 9 of Part 7 of Income Tax Earnings and Pensions Act (ITEPA) 2003 and Paragraphs 26 and 27 of Schedule 5 ITEPA 2003.
Legislation was introduced at section 107 of Finance Act 2020, which modifies Schedule 5, Part 4 ITEPA 2003 and 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, subsection (3) alongside the other list of exceptions such as injury, ill-health or disability (a) to (d) as (3)(e) which gave effect to a time limited exception to the working time requirement for employees who are furloughed or working reduced hours because of coronavirus. Paragraph 27 of that Schedule (meaning of ‘working time’) was modified 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. The exception applied until 5 April 2021.
Section 535 of ITEPA 2003 (disqualifying events relating to employee in relation to enterprise management incentives) was modified 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.
Proposed revisions
Legislation will be introduced in Finance Bill 2021 to modify section 107 of Finance Act 2020. This will ensure that employers can continue to 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. This will apply until 5 April 2022.
Legislation in Finance Bill 2021 will also be introduced to modify the date for the time-limited exception in Schedule 5, Part 4 ITEPA. This will now apply until 5 April 2022. This will ensure that employees with qualifying options and employers who wish to issue new EMI share options can continue to access the exception while the coronavirus pandemic continues.
Summary of impacts
Exchequer impact (£m)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| Nil | Nil | 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 to 2019. This measure will maintain tax reliefs where they may otherwise not apply due to varied employment contracts during the coronavirus 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 to 2019.
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 pandemic. There is expected to be no impact on civil society organisations.
Operational impact (£m) (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, email: incometax.structure@hmrc.gov.uk.