One of the uncertainties faced by many companies as a result of COVID-19 has been its impact on tax-advantaged employee share schemes – SAYE, SIP, CSOP and EMI. On 8 June 2020, HMRC published welcome Covid-19 related guidance and amendments in relation to such schemes. However, anyone interested in the treatment of EMI options will have to wait a bit longer as HMRC continues to explore the EMI issues raised.
Save As You Earn (SAYE)
HMRC’s guidance provides as follows:
- Extension to payment holiday terms
Previously, employees who delayed payment of their monthly contributions for more than 12 months would see their savings contract cancelled. HMRC have now extended the savings period (for an unspecified length) where the additional months are missed due to COVID-19. The additional payment holiday represents a postponement only and therefore the savings contract will be extended by the same number of months. HMRC has amended its SAYE prospectus to reflect this change.
- Deductions from CJRS payments allowed
HMRC has clarified that Coronavirus Job Retention Scheme (CJRS) payments to furloughed employees constitute salary and therefore SAYE deductions can be made from these payments.
- Payments via standing order permitted
Employees taking unpaid leave are permitted to make payments via standing order for the period during which they are unable to make deductions.
Share Incentive Plans (SIPs)
Following confirmation that CJRS payments constitute salary, HMRC has further confirmed that furloughed employees can continue to deduct SIP contributions from these payments.
However, employees who stop their deductions will not be permitted to make up the missed payments later.
Company Share Option Plans (CSOPs)
Under the CSOP rules, directors (although not employees) must work full time to qualify for the grant of CSOP options. Although ceasing to work full-time after the grant of CSOP options has never resulted in those options being disqualified, HMRC has nevertheless confirmed this position by accepting that full time directors and qualifying employees who have been furloughed, and were granted options before COVID-19, will remain qualifying.
Unfortunately, HMRC has not yet addressed the main concern around EMI: Can employees who have been furloughed be granted EMI options? And does furloughing employees constitute a disqualifying event for EMI purposes?
The concern centres around the ‘committed time’ requirement in the EMI legislation. To qualify for the grant of an EMI option, an employee must work at least 25 hours a week or, if less, 75% of the time they do work, for the grantor company. It is hard to escape the conclusion, on the legislation alone, that an employee who has been furloughed and undertakes no work would fail to satisfy this conclusion.
The committed time requirement also applies throughout the period the EMI option is held. This could mean that furloughed employees who already hold EMI options may find that their position has triggered a disqualifying event, resulting in the loss of beneficial tax treatment from the date of the event.
HMRC explains that it is currently exploring the issues raised by stakeholders and will provide updates as soon as possible.
Although the main questions remain unanswered, HMRC has extended the 90-day period during which EMI options must be granted following a valuation agreement with HMRC. Provided there has been no change which may affect the value, any new valuations agreed will be valid for 120 days, and any valuations currently within the 90-day period will benefit from an additional 30 days.
A Reminder About Registration and Filing Deadlines
Returns in relation to share schemes in respect of 2019 must be filed online by 6 July 2020. HMRC has recognised that COVID-19 may result in some employers and agents struggling to meet this deadline and will consider COVID-19 as a reasonable excuse in appropriate circumstances. However, as there is no guarantee that COVID-19 will be accepted as an excuse in any individual case, employers and agents are encouraged to continue to treat 6 July as a strict deadline in order to avoid penalties.