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EMI Schemes and furloughing staff

View profile for Tim Field
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EMI Schemes and furloughing staff

In recent years, Enterprise Management Incentives (EMI) share options have become an increasingly popular way for owners of small and medium sized businesses to incentivise and provide an opportunity for employees to become shareholders. Therefore they obtain a stake in the company that they work for.

EMI schemes can be particularly attractive to employees and employers, given the various different ways in which the EMI scheme can be structured. For example, there is no financial commitment required from the employee until the option is exercised. Performance targets can be imposed that must be satisfied before the option can be exercised.

From a tax perspective, the employee is also able to obtain certain advantages in respect of income tax. They may not have to incur any outlay for the shares if the EMI option is only triggered on an exit event, usually the sale of the company.

Whilst EMI schemes have proved popular, it is worth noting that those employees who are furloughed under the current government COVID-19 Job Retention Scheme may well suffer a disqualifying event under the strict statutory terms under which EMI schemes are regulated. 

The disqualifying event will be caused by the fact that the employee would not be required to spend any time on the business of the company whilst furloughed. The result of the disqualifying event is that the tax advantaged status the employee may have been entitled to will be lost. 

We understand that this issue has been raised with HMRC. We now await a response to see if an exemption will apply to furloughed employees. 

If you are an employee or employer and would like more information regarding EMI schemes, please contact our specialist Business team. I am based in our Colchester office and can be contacted on 01206 217366 or tim.field@birkettlong.co.uk.

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