The Enterprise Management Incentives (EMI) tax regime continues to offer a highly favourable tax regime for qualifying options despite the restrictions on the related entrepreneurs relief – see: Budget 2020: Entrepreneurs Relief for more on the recent changes. 

However, the cost of obtaining the relief is reflected in the detailed conditions which apply. This has been emphasised by two recent developments:

Impact of Furlough Rules – The Furloughing grant announced by HMRC to protect the employment of individuals affected by Coronavirus has been widely welcomed. For the employer to obtain the grant, however, the affected employee must cease to work for the employer. If such an individual also holds EMI options, it is not clear whether HMRC would seek to treat the employee being placed on Furlough as ceasing to satisfy the working time requirement that the employee devotes either 25 hours per week or all his/her working time to the employment with the employer where the employee remains employed but without carrying out any duties. This is a factor to consider before placing an employee holding EMI options on Furlough.

Effect of a Disqualifying Event – if a disqualifying event – such as ceasing to satisfy the working time requirements happens – tax liabilities arise if the exercise of the option takes place more than 90 days after the disqualifying event. The charge is calculated on the amount by which the market value at the date of exercise exceeds the market value immediately before the disqualifying event. HMRC have recently updated their Employee Share Schemes Manual to provide an example of the operation of these rules – see: Effect of Disqualifying Event.

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