Share Schemes and the Job Retention Scheme 

April 2020

This is the first of a series of articles by Tax Partner Gavin Birchall on some of the unintended tax consequences of the recent Government Covid 19 measures. 

The decision for many employers as to which employees to furlough under the new Job Retention Scheme can be a difficult one but making use of this Government backed Scheme is fundamental to the future existence of many businesses.  

A business will inevitably consider a number of factors in determining how many and which employees to furlough. However, one lesser known consideration is the impact which this decision could have on companies which have implemented tax advantaged employee share schemes.  

If a company has granted share options under the EMI (Enterprise Management Incentive) Scheme or under the CSOP (Company Share Option Plan) Scheme to a number of Directors or employees and those Directors or employees are then furloughed, this could mean that such Directors or employees no longer satisfy the “working time requirement” for the purposes of these Share Schemes.  

In the context of an EMI or CSOP Share Option Scheme this would normally be regarded as a “disqualifying event” which would cause the employee or Director to lose the tax advantages associated with those Schemes. This could also have wider tax consequences for the employer company in the form of an employer NIC charge (at a 13.8% rate) if certain events happen in the future such as a future sale or listing of the company. 

It seems likely that these consequences are an unintended effect of the Job Retention Scheme and it may be the case that the Government will extend a concession to protect those furloughed employees or Directors from these tax disadvantages. However, as the Government is currently facing so many competing priorities, this is far from clear.  

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