Finance Bill 2020-21: changes to working time requirements for Enterprise Management Incentives

Finance Bill 2020-21 includes amendments to ensure that individuals will keep the tax advantages of the enterprise management incentives (EMI scheme) if they have either been furloughed or had their working hours reduced below the current statutory working time requirement for EMIs because of coronavirus

Companies with assets of £30m or less, may be able to offer EMI. Share options may be granted up to the value of £250,000 in a three-year period. Income tax and National Insurance contributions are not paid if an individual buys the shares for at least the market value they had when they were granted the option.

Those individuals participating or wishing to participate, in an EMI scheme are required to meet the ‘working time requirement’. This means that the employee’s time committed to the company must be equal to or exceed the statutory threshold of 25 hours per week or if less, 75% of their working time.

Where employees are furloughed, working reduced hours or taking unpaid leave, they may not be able to meet the committed working time requirement, which may prevent participants from being granted new options.

Finance Bill 2020 substitutes a new section 107 for the existing section 107 of the Finance Act 2020. The existing section 107 introduced a time-limited exception to the disqualifying event rules so that existing participants of enterprise management incentives (EMI) schemes are not forced to exercise their options much earlier than planned.

New section 107 extends the time-limited exception to new EMI share options granted on or after 19 March.

The modifications take effect from 19 March 2020 and will come to an end on 5 April 2021.

The clause also includes a provision for the Treasury to extend the exception for a further twelve months by regulations if the coronavirus pandemic has not ended by April 2021.

HMRC will accept that, from 19 March, if an employee who is with or to be issued with qualifying share options has met or would meet the requirements at the time of grant but 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.

There were around 12,000 companies operating an EMI scheme in 2018-19.

Changes to working time requirements for Enterprise Management Incentives is here.

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