The COVID-19 pandemic has impacted the operation of the various tax-favoured employee share plans in the UK. HMRC has previously published a bulletin to address some of these issues (see our previous Law-Now which summarises these here). Section 107 of Finance Act 2020 (which is due to receive Royal Assent imminently) went on to address one of the key issues in relation to Enterprise Management Incentive (EMI) options and the implications of COVID-19 in the context of the “working time requirement”. This made clear that that there will be no “disqualifying event” resulting from an EMI optionholder not being required to work for reasons connected with the coronavirus disease such that their existing EMI option retains the tax advantages of EMI (see our further Law-Now which discusses this in more detail and can be found here). However, what remained unclear is whether section 107 allowed for the grant of new EMI options to employees who would otherwise meet the “working time requirement” in the EMI legislation but are not being required to work due to COVID-19.
Finance Bill 2021 and the EMI Working Time Requirement
A new section 107 (which is intended to replace section 107 in Finance Act 2020) has been proposed in Finance Bill 2021 which makes clear that an employee who would otherwise meet the “working time requirement” in the EMI legislation, but is not being required to work due to COVID-19 (i.e. because they have been furloughed, or have otherwise reduced their hours due to COVID-19), will be eligible to be granted an EMI option, notwithstanding they will not meet the “working time requirement” at the time of grant. Our understanding is that HMRC will accept that where an employee is to be issued with EMI options and would meet the “working time requirement” at the time of grant but does 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 new provision is to have retrospective effect from 19 March 2020 and will apply until 5 April 2021 (although there is provision for this relaxation to be extended to 5 April 2022, if required).
Whilst this is a further welcome development, it is unclear how this will operate as a matter of law, given the Finance Act 2021 is unlikely to receive Royal Assent until next Spring at the earliest. We would assume that employers should do everything necessary for the EMI options to qualify and treat them accordingly, although this may be an issue if the EMI options become exercisable before the proposed change is enshrined in law. We would also assume that optionholders can validly sign the requisite “working time declaration” to confirm that they meet the “working time requirement”, notwithstanding that, as a matter of fact, they do not meet it. Given these potential issues and uncertainties, it would be helpful if HMRC could publish some clarifying guidance as soon as possible.