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COVID-19, furloughing employees and EMI options

Where companies have in place an Enterprise Management Incentive (EMI) Scheme, what is the impact of furloughing employees on their EMI options?

Update: The government have tabled an amendment to the Finance Bill 2020 which effectively provides that time on furlough counts as working time for EMI purposes and being placed on furlough will not be a disqualifying event for EMI purposes.

In summary, these changes will ensure that the furlough scheme does not adversely affect the tax advantaged status of EMI options held by those employees placed on furlough

As the practical implications of furloughing employees continue to be assessed, one of the questions that has arisen is where companies have in place an Enterprise Management Incentive (EMI) Scheme, what is the impact of furloughing employees on their EMI options?

Employees placed on furlough remain employees but the EMI legislation also contains a working time requirement which requires that the option holders must work for the company (or group):

  • at least 25 hours each week (the 25 hours requirement), or
  • if less, 75% of their working time (the 75% requirement).

It has been suggested that furloughed employees may no longer meet these working time requirements, in which case they will cease to be “eligible employees” and lose the EMI tax benefits. We do not however believe that this should be the case.

Firstly, HMRC guidance confirms that “The working time requirement is based on the average working time of an employee, so it can apply to an employee on flexi-time whose hours vary, but whose average working time meets the requirements”. We would therefore submit that looked at on this basis (for example, if you looked at average working time over the past 12 months) the 75% of total working time requirements will continue to be met by furloughed employees provided that they do not take on any second job or other paid work while on furlough.

Whilst, therefore, we agree that there is a technical risk of EMI options being affected, we do not believe that HMRC will interpret the legislation in such a narrow and restrictive manner in the current circumstances and we would also further note that the legislation already provides that in calculating “working time” it includes any time that an employee would have been working but for “injury, ill-health, disability, pregnancy, childbirth, parental leave, reasonable holiday entitlement or not being required to work during a period of notice of termination of employment”. If necessary (and in order to put the matter beyond doubt) this provision could be easily extended to furloughed employees.

In summary, we are confident that HMRC will take a pragmatic view in the present circumstances so that the EMI options will be unaffected but we are still awaiting confirmation of this / further guidance.

In the meantime, any companies with EMI schemes in place should review the terms of their EMI schemes in relation to what happens to the EMI options if the option holders cease to be “eligible employees” in order that they are able to take any appropriate actions (such as allowing the options to be exercised to retain the EMI benefits) within any required timescales set out in the EMI scheme in the (hopefully unlikely) event that the above analysis is not followed and HMRC advise that furloughing employees will result in them ceasing to be “eligible employees” for EMI purposes.

If you require any assistance with reviewing your EMI scheme, please contact Haydn Rogan, Partner at


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