How has Covid-19 affected employee benefits?

In light of recent HMRC guidance, Graham Muir and Andrew Quayle explain how the coronavirus pandemic has impacted tax-favoured employee share plans

How has Covid-19 affected employee benefits?

Save As You Earn

HMRC has confirmed that it will extend the existing 12-month payment holiday and allow for a longer period where monthly contributions are missed due to Covid-19. 

HMRC confirmed that, where employees have been furloughed and have received payments under the coronavirus job retention scheme (CJRS), these payments can constitute salary and SAYE contributions can continue to be deducted from these payments.

Share Incentive Plans (SIP)

Similar to SAYE, the bulletin says that, where employees receive payments under the CJRS, these payments can constitute salary and SIP contributions can continue to be deducted from these payments.

Company Share Option Plans (CSOP)

The only confirmation from HMRC in relation to CSOP options is that where employees and full-time directors have been granted options prior to the Covid-19 pandemic and are subsequently furloughed, those options will remain qualifying on the basis they were full time directors and/or qualifying employees at the time of grant.

EMI valuations

HMRC acknowledges that Covid-19 may lead to situations where EMI options may not be granted within the 90-day period for which a valuation agreement is usually valid and has therefore confirmed that, provided there have been no circumstances which would impact the valuation, then:

  • where the 90-days expired between 1 March 2020 and 29 May 2020 this can be automatically treated as being extended by a period of 30- days; and
  • any new EMI valuation agreement letter issued on or after 1 March 2020 will be valid for 120-days.

Deadline for registration of new schemes and filing of returns

Finally, although HMRC has confirmed that employers and agents should try to meet the 6 July 2020 deadline for registering new schemes and filing ERS annual returns, it has also said that where this is not possible due to Covid-19, this will be considered as a reasonable excuse.

Enterprise Management Incentives (EMI)

Disappointingly, the bulletin says that HMRC is still considering the issues raised by stakeholders in relation to the impact of Covid-19 on EMI options and will provide an update as soon as possible. 

One of the main issues of EMI is where employees are furloughed, reduce their hours or take unpaid leave. This could have implications in the context of both the ‘committed time’ requirement and the ‘reckonable time’ requirement under the EMI legislation. Bearing in mind that many employees were furloughed more than 90-days ago, it may be too late to take any remedial action in relation to their EMI options if a ‘disqualifying event’ has already arisen.  

Other issues

It is possible that some EMI and CSOP options have been granted with performance targets and that these require amendment to allow for the impact of Covid-19. The bulletin has not addressed whether this would be considered as either breaching the terms of the option or as such a fundamental change that HMRC will deem this to be the grant of a new option. 

In addition, although  the bulletin has confirmed that individuals who participate in a SAYE plan will be permitted to make payments via standing order and/or be allowed to extend their payment holiday, it has not said  whether participants experiencing financial hardship can access the savings they have built up for their SAYE options with the 

In relation to SIPs, the bulletin has also not considered the limits imposed under the legislation and the effect of these on furloughed employees. For instance, the limits for partnership shares are £1,800 or 10 per cent of salary (whichever is lower). Salary will obviously be affected by the furloughed period and it is unclear how these requirements will be applied in light of COVID-19.

HMRC has addressed some of the issues which have arisen in relation to the impact of Covid-19 on tax-advantaged employee share plans, but clearly there are several problems which still require guidance. 

Graham Muir and Andrew Quayle are employee incentives partners at CMS