24 July 2020
In Employment Related Securities Bulletin 36 HMRC explain how some of the time limits and restrictions on Enterprise Management Incentives (EMI) will be relaxed in the wake of the coronavirus pandemic.
One of the requirements of the EMI scheme is that employees who participate in the scheme must meet the working time requirement of at least 25 hours per week or, if less, at least 75% of their working time. Covid-19 may have affected working arrangements so that this requirement has been missed by some employees. HMRC state that if, except for reasons connected with the coronavirus pandemic, the requirement would have been met, then the time that an employee would have spent on the business of their employer will count to towards the working time requirement.
The bulletin goes on to explain the types of reasons that will be acceptable, namely:
- furlough
- working reduced hours
- unpaid leave
The period of reduced working must have commenced on or after 19 March 2020 and evidence of the connection to coronavirus must be kept. Usefully the bulletin gives some examples of how this easing may work in practice.
Only companies with 250 or fewer full time equivalent employees can take advantage of the EMI scheme and HMRC explains in the bulletin how this measure will be interpreted by them in the light of furlough, short-time working and other restrictions brought on by the pandemic. In essence, any employee will be treated as having their previous working time equivalence, unless there has been a permanent change to their contracted hours.
Within the EMI rules there are certain deadlines to be met in reporting to HMRC. Whilst there are no published deadline extensions, the bulletin does indicate that missed deadlines will be viewed sympathetically where the cause for late reporting is linked to the pandemic. However, every effort should be made to make the necessary filings on a timely basis.
Of course, one of the impacts of the virus on many businesses has been a downturn in trade and profitability. This is likely to affect the valuation of companies and, if incentivising employees by way of acquiring an interest in company shares, the coming months may be a good time to take advantage of the tax breaks under EMI. Additionally, if there are employees who may feel disaffected by, say, a period of furlough, but are important to the business in the long term, what better way of making sure they stay with the company than an offer of an interest in shares in the company? Equally, for those employees who have ‘stepped up to the plate’ during lockdown, would a suitable reward be an option to obtain shares in the business cost effectively at some future point, without putting a strain on the company’s cash resources?
If you would like to find out more on implementing a share incentive scheme for your employees, contact your local UHY adviser.
