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Business Tax  •  Coronavirus Advice  •  Share Schemes

How can Covid-19 present an opportunity for employee share schemes?

By RJP LLP on 16 June, 2020

Employee share schemes can be highly tax efficient and are a proven way to increase employee loyalty and productivity. Now, as we enter a difficult economic period as a result of Covid-19, it might be a particularly good time to launch a scheme. This is because some companies are inevitably facing lower market valuations due to the economic uncertainty and the impact of the lockdown on their trading levels. For once a slight drop in business can mean better gains in the future!

Understanding employee share option schemes

Focusing on the Enterprise Management Incentive (EMI) which is targeted at SMEs, this enables employees to acquire options to purchase shares in their employer company (or group) at some time in the future based on today’s value of those shares. The lower today’s agreed value is, the greater the benefit to the individual in the future.

If your company has already agreed a valuation for an EMI scheme prior to the Covid-19 crisis without yet granting its options, and if you consider the value of the shares has reduced, you may want to revisit the valuation, taking into consideration current market conditions. This would need to be approved by HMRC.

Where share options have already been granted as part of an existing scheme, it may be possible for employees to give back their ‘pre-Covid’ options, in exchange for new ones issued at a lower value.

For larger companies who were previously excluded from offering an EMI share scheme because for example their assets were over the £30 million gross assets limit, a reduction in value might mean this highly tax efficient scheme is now available.

Care with furloughed employees and share schemes

Caution is needed in situations where employees were previously granted share options and then placed on furlough through the government’s Coronavirus Job Retention Scheme.  As a result of not working for an extended period, they may no longer meet the criteria for  number of working hours required by EMI scheme participants. To what extent this will apply is currently unclear and each company’s position should be verified with HMRC.

Being able to offer existing employees the chance to participate in the future success of the company provides the potential to offer an extra loyalty incentive at a time when cash for salary increases and bonuses may not be available.  Research has consistently demonstrated that some form of capital participation will significantly increase employee engagement and productivity.  During hard times, share schemes and share option schemes can also be powerful recruitment incentives.

Deadline for submitting share scheme returns

Companies who are already operating employee share schemes are required to submit an annual ERS (employment related securities) return by 6 July 2020 for the 2019-20 tax year that ended on 5 April 2020. This is needed even if there have been no transactions. In addition, if your employee share scheme has ceased and you have entered a final event date, any outstanding returns up until the date of cessation must be submitted.

If you require advice about EMI, or need help filing your annual ERS return, please contact

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31 July 2020 - Normally an important deadline!

All taxpayers due to make self-assessment tax payments on 31 July 2020 can now delay their payment due to the disruption caused by Coronavirus. This includes self-employed taxpayers and also company directors who pay self-assessment tax on dividend income.

Read more in our coverage of Coronavirus and business support from the Government.