The Enterprise Management Incentive (EMI) Option Scheme is widely used by those "qualifying" companies (see https://www.morton-fraser.com/sites/files/emi_option_scheme.pdf for more information) to give share options to employees in a way that avoids the company incurring a tax liability, and greatly reduces the tax liability for the employee. Options over shares can be granted by employers for the purpose of recruiting and retaining employees (EMI Options cannot be used as part of an arrangement to avoid tax liabilities).
It is a qualifying requirement of EMI that an employee satisfies the working time requirement, of working at least 25 hours per week in the company or, if less, 75% of the employee’s total working time. If these working time qualifying requirements cease to be met, then this is a “disqualifying event” and the tax benefits of EMI will also cease. An employee who has been furloughed will no longer be working 25 hours/week and this constitutes a disqualifying event.
If a furloughed employee holding EMI Options takes on additional work for another employer this could jeopardise the employee qualifying for the working time requirement set out above. Or if an employee holding EMI Options is asked to work reduced hours and then seeks employment elsewhere, this too could result in a disqualifying event.
HMRC is aware of these issues and it is hoped that a concession on this point will be granted shortly. Even if such a concession is granted by HMRC, there could still be issues where an option scheme provides that the option lapses on the occurrence of a disqualifying event.
Before taking any decision to furlough employees holding EMI Options, employers should carefully review their EMI Option Scheme Rules and the individual EMI Option Agreements granted to employees. There may be discretion to allow EMI Options to vest early, allowing an employee to exercise an EMI Option before agreeing to furlough leave. However this may not be an option for many start-up companies who are held to having "exit only" options by their investors so employees can only exercise EMI Options if the company is sold.