EMI and furloughed employees

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Where an employer has furloughed employees under the Coronavirus Job Retention Scheme (CJRS), consideration should be given to the potential impact this may have on both existing EMI share plans, along with the employer’s ability to grant new EMI options in the future.


Disqualifying event

One of the qualifying conditions for EMI status is that the option holder must work at least 25 hours per week or, if less, 75% of their working time for the company (or one of its subsidiaries) that granted the options. Where an EMI option holder is furloughed, they may no longer meet that working time requirement and so this could be a ‘disqualifying event’ under the EMI legislation.

A disqualifying event means their share options cease to qualify as EMI options, and therefore to retain the tax benefits, the employee would need to exercise their options within 90 days. If the option is not exercised within 90 days, it becomes an unapproved option from the date of the disqualifying event and this could result in income tax liabilities arising. In addition, depending upon the scheme rules, the options may lapse and the employee does not even have the chance of exercising.

Granting new EMI options

It is likely that any new options granted to furloughed employees will therefore not be qualifying EMI options. The employees would therefore be granted unapproved options, meaning future capital growth (above the exercise price) could be subject to income tax and possibly National Insurance (rather than capital gains tax).

250 full-time employee limits

There are various requirements that companies must satisfy in order for their share options to qualify as EMI options. One of these is that the company (or group of companies) must have fewer than 250 full-time equivalent employees at the time the option is granted.

Arguably, a furloughed employee is still legally a full-time employee (albeit not actually doing any work) and therefore they still count towards the 250 full-time employee limit. There are situations where some workers don’t count towards the limit, for example employees on maternity, paternity or shared parental leave. The position is certainly not clear (and we can see arguments that they should not count), however, until further clarity has been provided by HM Revenue & Customs (HMRC), those employees who have been furloughed (and would be full-time employees in the normal course) may count towards the 250 cap.

This would be an issue for those companies looking to grant new EMI options who are close to the 250-employee limit.


We understand HMRC are still considering the tax issues arising from the Coronavirus pandemic in relation to EMI options. It is hoped HMRC will announce a concession for EMI option holders in these circumstances, waiving the working time requirement whilst on furlough leave. An existing concession already applies for option holders called up to serve as armed forces reservists and this could potentially be extended to deal with the issue in a similar way.

On the basis that furloughed employees currently don’t satisfy the working time requirement, then in light of this potential guidance by HMRC, companies should only grant new EMI options in very limited circumstances – effectively, where the employee cannot wait a few weeks and fully accepts the risk. Regarding employees with existing EMI options, again it is recommended they wait for HMRC’s guidance. Hopefully, a concession will be granted, however, if not, then consideration should be given to whether the options could be exercised or regranted after they return from furlough leave.

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