June 10, 2020
HMRC has issued guidance as to certain aspects of EMI (and other) share option schemes to cater for practical issues caused by COVID-19. Whilst it deals with the impact of furloughing on CSOP options, it does not yet deal with EMI options but importantly extends the time limit for expiry of EMI share valuations.
Enterprise Management Incentive (EMI)
So far HMRC have not issued any guidance relating to EMI (in particular the impact of furloughing on existing options or options that are to be granted imminently). They have said that they will provide updates as soon as possible, and when they do Wiggin will communicate such news.
When EMI options are ready to be granted it’s possible to contact HMRC and agree an appropriate valuation. Where valuations are agreed by HMRC the options currently need to be granted within 90 days.
Coronavirus may lead to situations where there have been delays in granting EMI options which takes people over the 90 day period. HMRC have announced that provided that there has been no change that may affect an appropriate value then:
- any EMI valuation agreement letters already issued, where the 90 days expires on or after the 1 March 2020, can be automatically treated as being extended by a period of 30 days
- any new EMI valuation agreement letter issued on or after 1 March 2020 will be valid for 120 days.
Now may well be a good time to grant EMI (and other) options when share values are low. Wiggin can advise on all aspects of setting up company share schemes, including EMI and related incentivisation arrangements (including growth shares) for circumstances where EMI options are not available (e.g. for consultants/non- executive directors, or part time employees who do not satisfy the working time commitment required for EMI options of 25 hours a week, or 75% of the individual’s working time, if less).
Deadlines for registration of new EMI schemes and filing of returns
HMRC recognises that some employers and agents may struggle to meet employment share awards reporting obligations due to coronavirus. In particular, a company that sets up a new EMI scheme must notify its establishment, and the grant of options thereunder, within 92 days. Failure to register and notify can mean that the options do not qualify for EMI tax benefits. The company must also file an annual report regarding its EMI options (e.g. exercise and related matters effected in tax year 2019-2020) by 6th July 2020. Similar reporting requirements relate to unapproved options and other share awards made to employees.
HMRC have said that a company should try to meet its obligations such as registering new schemes and filing returns as soon as it can. However if it cannot and this is due to coronavirus, HMRC will consider coronavirus as a reasonable excuse for missing “some tax obligations”. It is not clear though the extent of HMRC’s flexibility here, and so any company that has such reporting/notification obligations would be advised to seek advice to be sure that these important deadlines are not missed.
Save as you Earn (SAYE)
Where participants are unable to contribute because they’re furloughed or on unpaid leave during the coronavirus pandemic, HMRC will extend the payment holiday terms.
The current prospectus already allows employees to delay the payment of monthly contributions by up to 12 occasions in total. This is without causing the savings contract to be cancelled. HMRC will now allow contributions to be postponed for a longer period where the additional months are missed due to coronavirus.
Payments of Coronavirus Job Retention Scheme (CJRS) to employees furloughed during the coronavirus pandemic can constitute a salary and SAYE contributions can continue to be deducted from CJRS payments.
Any temporary postponement of contributions will put back the 3 or 5 year maturity date by the total number of months missed, including any additional months missed as a result of the impact of coronavirus. A worked example can be found in the link to the HMRC briefing note below. All employees with a savings contract in place on 10 June 2020 can delay the payment of monthly contributions, beyond 12 months, where those additional months are due to coronavirus. For participants who find themselves unable to make monthly contributions from their salary, due to having to take unpaid leave during the coronavirus pandemic, HMRC will permit payments to be made via standing order.
Share Incentive Plan (SIP)
Payments under the Government’s Coronavirus Job retention Scheme (CJRS) to employees furloughed during the coronavirus pandemic can constitute a salary and SIP contributions can continue to be deducted from CJRS payments. SIP participants are already permitted to stop their deductions from their salary. Participants will not be allowed to make up missed deductions if they stop due to coronavirus.
Company Share Option Plans (CSOP)
HMRC accepts that where employees and full-time directors, now furloughed because of coronavirus, have been granted options before coronavirus, those options will remain qualifying on the basis they were full time directors and qualifying employees at the time of grant.
Further details of the HMRC guidance can be found here.
Please contact any member of Wiggin’s Tax or Employment team if you wish to discuss any of these issues.