Many businesses are making use of government’s Coronavirus job retention scheme. However, it is a qualifying requirement of EMI that an employee satisfies the working time requirement, of working at least 25 hours per week in the company or, if less, 75% of the employee’s total working time. If you furlough employees under the scheme, they are prohibited from working while they are furloughed.
If these working time qualifying requirements cease to be met, then there is a “disqualifying event” and the tax benefits of EMI also ceases. It may also mean that the option lapses (depending on the specific terms of the option).
An employee who has been furloughed is no longer working 25 hours/week and this constitutes a disqualifying event.
HMRC are aware of the issue and It is hoped that HMRC will publish a concession on this point. They already have one in place for employee option holders called up to serve as armed forces reservists. However, until such a concession is announced, it would be pragmatic to hold back, if you can, on furloughing EMI option holders.
As an alternative, if the rules permit, or there is a directors’ discretion under the rules, the option holder could exercise the option before furloughing, hence avoiding the problem altogether.
However, even if such a concession is granted by HMRC, there could still be issues where an option scheme provides that the option lapses on the occurrence of a disqualifying event.