Furloughing and EMI schemes: unexpected consequences for option holders and their employers

One of the key qualification criteria for employees being granted EMI (Enterprise Management Incentive) share options is that they work for the company granting the options (or one of its subsidiaries) for:

• on average at least 25 hours per week, or
• where the employee spends on average less than 25 hours per week working for the granting company (or one of its subsidiaries), on average at least 75% of their total working time must be working for the granting company (or one of its subsidiaries).

Employees being granted EMI options must sign a declaration of compliance with the above, the "working time requirement", when the option is granted. The declaration must be retained by the company and kept available for inspection by HMRC. If an EMI option holder ceases to meet the working time requirement, this is a disqualifying event. If the option is not exercised within 90 days of the disqualifying event, the tax treatment of the option shares changes.

An issue has arisen in relation to EMI option holders who have been furloughed by their employers. Technically this amounts to a disqualifying event under the working time requirements. We're hoping that HMRC is sensible and publishes a new concession for employee option holders in these circumstances, waiving the working time requirement whilst on furlough leave. An existing concession already applies for employee option holders called up to serve as armed forces reservists and this could be extended to deal with the issue.