The COVID-19 pandemic has impacted the operation of the various tax-favoured employee share plans in the UK. The eagerly awaited HMRC bulletin has now been published, which addresses some issues but leaves many questions unanswered (particularly in relation to EMI options). The key points are summarised below and the full bulletin can be found here.
What has HMRC’s bulletin addressed?
Save As You Earn (SAYE):
HMRC has confirmed that it will extend the existing 12 month payment holiday and allow for a longer period where monthly contributions are missed due to COVID-19 (such as employees being furloughed or being on unpaid leave), though the bulletin does not state any limit on this extension. The bulletin also confirms that, where there are missed contributions, the maturity date for the relevant savings contract will be put back by the total number of months missed.
HMRC has also confirmed that, where employees have been furloughed and have received payments pursuant to the Coronavirus Job Retention Scheme (CJRS), these payments can constitute salary and SAYE contributions can continue to be deducted from these payments.
Finally, the bulletin states that where participants are unable to make monthly payments from their salary (for example, employees on unpaid leave) but wish to continue to make contributions, they will be permitted to make payments via standing order but that deductions from salary should recommence at the “earliest opportunity”.
Share Incentive Plans (SIP):
Similar to SAYE, the bulletin states that, where employees receive payments pursuant to the CJRS, these payments can constitute salary and SIP contributions can continue to be deducted from these payments.
In relation to stopping deductions from salary, the SIP legislation already allows participants to do this but HMRC has confirmed that participants will not be allowed to make up missed deductions if they stop them due to COVID-19.
Company Share Option Plans (CSOP):
The only confirmation from HMRC in relation to CSOP options is that, where employees and full-time directors have been granted options prior to the COVID-19 pandemic and are subsequently furloughed, those options will remain qualifying on the basis they were full time directors and/or qualifying employees at the time of grant.
HMRC acknowledges that COVID-19 may lead to situations where EMI options may not be granted within the 90-day period for which a valuation agreement is usually valid and has therefore confirmed that, provided there have been no circumstances which would impact the valuation, then:
- where the 90 days expired between 1 March 2020 and 29 May 2020 (inclusive), this can be automatically treated as being extended by a period of 30 days; and
- any new EMI valuation agreement letter issued on or after 1 March 2020 will be valid for 120 days.
Deadline for registration of new schemes and filing of returns
Finally, whilst HMRC has confirmed that employers and agents should try to meet the 6 July 2020 deadline for registering new schemes and filing ERS annual returns, it has also said that where this is not possible due to COVID-19, this will be considered as a reasonable excuse, provided employers and agents can demonstrate how they were affected by COVID-19 when making their appeal.
What has HMRC’s bulletin not addressed?
Enterprise Management Incentives (EMI):
Disappointingly, the bulletin states that HMRC is still considering the issues raised by stakeholders in relation to the impact of COVID-19 on EMI options and will provide an update as soon as possible. If, as we understand is the case, HMRC is consulting with the European Commission (in light of EMI’s status as being subject to the application of the EU State Aid rules), it may be that we may need to wait a while longer before detailed guidance is published.
One of the main issues in the context of EMI is where employees are furloughed, reduce their working hours or take unpaid leave. This could have implications in the context of both the “committed time” requirement and the “reckonable time” requirement (which, if not met, would normally result in a “disqualifying event” occurring) under the EMI legislation. Bearing in mind that many employees were furloughed more than 90 days ago, it may be too late to take any remedial action in relation to their EMI options if a “disqualifying event” has already arisen. In these circumstances, we would hope that HMRC takes a pragmatic approach to these issues so that those working fewer hours than mandated under these requirements are not disadvantaged.
Whilst HMRC has addressed that employers and agents may not be able to meet the 6 July 2020 deadline for the registration of new schemes and submission of ERS annual returns, the bulletin does not address where employers are unable to notify the grant of EMI options within 92 days of the date of grant due to COVID-19. Given the approach taken in relation to the registration of new schemes and submission of returns, we would hope that HMRC takes a similar stance in relation to the notification of grant of EMI options.
It is possible that some EMI and CSOP options have been granted with performance targets and that these require amendment to take into account the impact of COVID-19. The bulletin has not addressed whether this would be considered as either breaching the terms of the option or as such a fundamental change that HMRC will deem this to be the grant of a new option.
In addition, whilst the bulletin has confirmed that individuals who participate in a SAYE plan will be permitted to make payments via standing order and/or be allowed to extend their payment holiday, it has not addressed whether participants experiencing financial hardship can access the savings they have built up for their SAYE options with the ability to pay this back later or “top up” their savings prior to vesting.
In relation to SIPs, the bulletin has also not addressed the limits imposed under the legislation and the effect of these on furloughed employees. For instance, the limits for partnership shares are £1,800 or 10% of salary (whichever is lower). Salary will obviously be affected by the furloughed period and it is not clear how these statutory requirements will be applied by HMRC in the current circumstances.
Whilst it is pleasing to see that HMRC has addressed some of the issues which have arisen in relation to the impact of COVID-19 on tax-advantaged employee share plans, and has, for the most part, taken a pragmatic approach, it is evident that there remain a number of issues which still require consideration and guidance, particularly in relation to EMI. We would therefore hope that HMRC issues another bulletin soon and addresses these.