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01 July 2020

Government provides welcome clarity for EMI option holders who have been furloughed

The government has recently published proposed amendments to the EMI rules. These amendments provide some welcome clarity and address concerns regarding the consequences of furloughing EMI option holders. 

What were the concerns? 

The main concern was that a furloughed option holder would no longer fulfil the EMI working time requirements. This would trigger a “disqualifying event”, resulting in a loss of tax benefits and, depending on the option terms, the loss of the option itself. 

In light of these unwelcome consequences, stakeholders have been lobbying HMRC for some time to provide clarity on the issue. A recent HMRC bulletin acknowledged that issues had been raised and committed to providing updates as soon as possible. 

How has the government now provided clarity? 

The government has recently published new draft clauses for inclusion in the Finance Bill 2020, along with explanatory notes. 

If enacted in their current form, these clauses amend the EMI rules to prevent a disqualifying event arising where an option holder does not meet the working time requirements for reasons connected with the coronavirus pandemic. 

The amendments would apply with retrospective effect from 19 March 2020. They would also be time limited to apply only until the end of the current tax year, being 5 April 2021. The government may extend that time limit to 5 April 2022. 

Charles Russell Speechlys' commentary on the proposed amendments 

On the whole, this is a welcome (if overdue) development. If enacted in their current form, the amendments should put to rest most concerns regarding the impact of the Coronavirus Job Retention Scheme ("CJRS") on EMI option holders. 

It is also helpful that the proposed amendments are broadly worded. They apply not only to furloughed option holders, but to anyone unable to meet the working time requirement “for reasons connected with coronavirus disease”. For example, option holders taking unpaid leave or working reduced hours because of coronavirus. 

However, it is unfortunate that HMRC has taken so long to address this issue. We expect most employers and furloughed option holders will have adopted a “wait and see” approach. As such, they will benefit from the proposed amendments. 

Some though may have understandably concluded that, in the absence of any guidance from HMRC to the contrary, a disqualifying event occurred once the option holder ceased working under the CJRS. With the 90 day clock ticking away, they may have taken steps to secure the exercise of affected options to keep the valuable tax benefits. In light of these proposed amendments to the EMI rules, the tax consequences of such steps (and any future sale of the shares) may now not be as expected. Any companies or option holders in this position should seek specialist advice.


Please do not hesitate to contact Robert Birchall or your usual Charles Russell Speechlys LLP contact if you have any queries.

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