COVID 19 & Employee Share Schemes: The Good, The Bad and The Ugly

Our team: Gemma Grunewald, Helen Cox

The Good?

With the economic impact of COVID-19 likely to be felt for many months (and perhaps years) to come, companies may look to alternative methods of remuneration as a way to incentivise key members of staff.  Share schemes offer an efficient way of rewarding employees without companies having to make cash payments, and with low share prices, now may be the optimum time to consider granting options to employees.

A short while ago HMRC published a welcome bulletin addressing a number of questions on tax-advantaged employee share schemes that have arisen because of COVID-19 and the Coronavirus Job Retention Scheme (CJRS).

What has HMRC’s bulletin addressed?

Company Share Option Plans (CSOP)

HMRC has confirmed that pre-existing options held by furloughed employees and directors will remain qualifying on the basis that the working-time requirement was met at the time of grant.

Enterprise Management Incentive (EMI) Plans


It is possible to agree share valuations with HMRC for EMI schemes. Where valuations are agreed with HMRC, the options usually need to be granted within 90days. HMRC have extended this window to 120 days.

Working time requirement

In order for an employee to qualify (and continue to qualify) for an EMI share option, they must work at least 25 hours a week or, if less, 75% of their working time for the grantor company.  For furloughed employees, it is difficult to see how this condition can remain satisfied and HMRC’s bulletin is silent on this point. On 26 June 2020, however, the government published amendments and new clauses to Finance Bill 2020.  Existing EMI option holders will be pleased to see that modifications are proposed to the EMI legislation to confirm that EMI option holders will not lose the beneficial tax treatment of their existing EMI options as a result of being on furlough, reduced hours or taking unpaid leave because of COVID-19 and therefore breaching the EMI working time requirements.

Filing deadlines

Employers currently have an obligation to register new schemes and file annual returns for employment-related securities by 6 July each year. HMRC has acknowledged that companies may experience COVID-19 related delays in meeting this deadline. Although it has not sought to extend the deadline, it has confirmed that it will consider coronavirus a reasonable excuse for a filing delay and companies should explain in any appeal how they were affected by COVID-19.

Save As You Earn (SAYE)

HMRC has confirmed that CJRS payments to furloughed employees can constitute a salary and therefore SAYE contributions can continue to be deducted.

In addition, employees who are taking unpaid leave as a result of coronavirus are permitted to make payments via standing order for the period during which they are unable to make deductions.

Finally HMRC has extended the payment holiday window for SAYE where additional months are missed due to COVID-19 (currently, employees are permitted to delay payment of monthly contributions by up to 12 months, but this new extension is for an unspecified length).

Share Incentive Plans (SIP)

HMRC has confirmed that furloughed employees can continue to deduct SIP contributions from their CJRS payments (on the basis that such payments can constitute a salary).

If payments are stopped because of coronavirus, participants will be unable to make up missed deductions.

The Bad?

However, although HMRC’s updated guidance is helpful, a number of questions remain unanswered.

What remains unclear from HMRC’s bulletin?

EMI Plans

Uncertainty remains for companies wishing to grant new EMI options to employees on furlough, reduced hours or taking unpaid leave. For such individuals it is difficult to see how the working time requirement is met at the time of grant. This is because the proposed modifications to the EMI legislation only address whether a disqualifying event occurs for existing EMI options and not whether an employee is eligible to be granted a qualifying EMI option in the first place. Companies seeking to grant new EMI options to affected employees may consider approaching HMRC for clarification first, or delay granting options until the position is made clear.

Performance conditions

In the current circumstances companies and employees may look to review and adjust performance-conditions in existing CSOP and EMI plans to match changing business plans and expectations. However, in the absence of any guidance to the contrary, there is a risk that such a move may be considered as such a fundamental change so as to deem this to be the grant of a new option (and therefore a loss of any pre-existing beneficial tax treatment). We therefore recommend exercising caution prior to making changes to existing share plans.

The Ugly?

Underwater options

Optionholders may find themselves holding “underwater options”; those share options that have an exercise price per share greater than the current market value of the share. Should underwater options be exercised and immediately sold, the option holder would make a loss – it is therefore unlikely that an optionholder would seek to exercise an underwater option.  In such situations, companies may rely on the “hope” value of their securities, or choose to look for new ways to incentivise their employees, such as cancellation and re-grant, cash cancellation of granting parallel options.


It is clear that tax-advantaged share schemes have been impacted by COVID-19 and although HMRC’s bulletin is certainly helpful in addressing some of the issues that have arisen, a number of uncertainties remain. Whilst we hope that further guidance from HMRC might be forthcoming, in the interim, companies should certainly consider whether their existing incentive arrangements remain appropriate in the circumstances and whether now might be the time to reward key employees.

HMRC’s bulletin can be found here.

For further information or if you have any questions, please contact a member of the Tax team.

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