The Revenue has published the latest in its series of Employment related securities bulletins. The bulletins are the Revenue's way of drawing attention to updates in the law or developments it wants to bring to your attention in relation to employee share plans and this latest bulletin we think will be of particular interest to HR and Reward Teams. It covers two of the most popular tax-advantaged schemes, EMI - that's the Enterprise Management Incentive, and also Save As You Earn. A reminder, the main tax benefit of an EMI scheme is that employees don’t have to pay the income tax that would normally be charged on the exercise of an option granted to them, and instead any gain is charged to capital gains tax, often at the more favourable 10% rate. As for SAYE, which is an all-employee plan, this is essentially an option - often granted at a discount to market value – which is tied to a savings contract, saving up to £500 a month, and at the end of your savings contract (3 or 5 years) the savings are used to exercise the option. The interest and any bonus at the end of the scheme is tax-free and, generally, the exercise of the option is tax free, any gain charged to capital gains tax on the sale of the shares acquired. So those are the schemes and that's why they are attractive. So what is the Revenue saying about them? To explain, on the line, share plans specialist Fleur Benns:
Fleur Benns: “So looking at the EMI first. So to participate in an EMI plan, and to continue to receive the full tax benefits that are available under the under the EMI plan, any participants have to meet a working time commitment, so the amount of their actual working time that they work for the company or the group in question. So back in March and April concerns were raised that employees who were furloughed, or had their hours reduced, or were placed on sabbatical due to the Covid pandemic would cease to meet the working time requirement and therefore would lose the tax benefits relating to the to the plan. So practitioners raised this point with the Revenue and after a number of months actually, the revenue finally recognised those concerns and announced that they would be amending the legislation to provide a sort of carve out, or an exemption, similar to the ones that are already in place for people who went on maternity leave or paternity leave, so that the time not worked, or reduced working, due to the pandemic would not count towards the working time commitment and participants would not therefore be penalised because they've been furloughed, for example. So the changes took place with effect retrospectively from March 2020, the 19th of March 2020, and they're currently due to end in April next year but what the bulletin has confirmed is that this exception, the Treasury can extend that for further 12 months if it turns out that the pandemic has not ended by April 2021 and we've still got employees who are being furloughed or are on reduced hours. So that good news in relation to that. So that's the EMI. The SAYE plan, which is the all employee plan, where employees save every month into a savings contract for a period of either three or five years and use those savings to exercise their options. Earlier this year, again in response to the pandemic and people having their hours reduced and consequently salary reduced, HMRC confirmed that participants in an SAYE plan could take holiday from making their monthly contributions. Now, under the legislation it is possible to have a 12 month holiday for making contributions anyway, but that was extended indefinitely and so if contributions were missed due to the participant being furloughed, or being on unpaid leave, during the pandemic, those missed months would be allowed under the terms of the legislation even if it was for more than 12 months.”
A last point on EMI. There is test for maintaining tax advantages and reliefs where the employee no longer meets the working time commitments due to the pandemic. The reason must be "connected to the coronavirus pandemic" - but what does mean? To help employers with that, the Revenue set out some working examples - they were in the previous bulletin, number 36. The Revenue has confirmed in this latest bulletin that those examples are still relevant, which is helpful. You can find those examples, and all the bulletins, on the government's website which is where the Revenue also makes the key point that employers and employees must keep evidence to show that there is a link to the pandemic.