COVID-19 has changed the way we live and work. Unfortunately for many this has meant reductions in the number of hours worked per week, reductions in pay, availing of the Temporary Wage Subsidy Scheme (TWSS) and, worse still, job losses.
This is a difficult time for employees and employers alike. IPSA has been considering the impact of the COVID-19 pandemic and altered working arrangements on share schemes and Key Employee Engagement Programme (KEEP) share options, Save As You Earn (SAYE) share options and the Approved Profit Sharing Scheme (APSS).
We sought clarification from Revenue on whether certain requirements would be relaxed or amended in order to prevent employees in share schemes being disadvantaged or disqualified due to the impact of COVID-19 on their jobs.
Revenue has confirmed that being subject to short-term working or reduced pay conditions will not have an undue impact on the eligibility for employees in KEEP schemes. We are awaiting a response to our SAYE and APSS enquiries.
Detailed below are the issues which we flagged with Revenue, together with the responses we have received.
Share options granted under the KEEP scheme have the taxation benefit of not being taxed as income on either the grant or exercise of the share option. Taxation, in the form of capital gains tax, is deferred until the individual sells their shares. To qualify for this taxation treatment, many terms and conditions must be met by the individual employee or director, the company and the form of the share option itself.
SHORT TERM WORKING
The hours per week requirement of the legislation was a concern for IPSA. The proposed changes (to be introduced by Ministerial Order) set out in Finance Act 2019 require that an employee or director to qualify under KEEP in a year and throughout the exercise period must in relation to qualifying share options throughout the entirety of the “relevant period” is—
(a) in the case of a qualifying group, an employee or director of a qualifying company within the group, and who is required to work at least 20 hours per week for such a qualifying company or to devote not less than 75 per cent of his or her working time to such a qualifying company, and
(b) in the case of a qualifying company not being a member of a qualifying group, an employee or director of the qualifying company, and who is required to work at least 20 hours per week for the qualifying company or to devote not less than 75 per cent of his or her working time to the qualifying company;
IPSA asked Revenue to consider how to address this and suggested that due to COVID-19 short time working hours, the 20 hours per week requirement could be relaxed and ignored for the period of COVID 19.
Summary extract: “In respect of KEEP options granted before the COVID-19 crisis, in the case of a temporary lay-off or any temporary short-time working arrangements, Revenue will consider the individuals to continue to be regarded as “qualifying individuals” for the purposes of this relief, if the requirement to work the 20 hours per week or devote 75% of his/her working time to the company would have been satisfied were it not for COVID-19. The qualifying company and individual must retain records which support the position should any queries arise.
“IPSA have confirmed that the individual must be considered qualifying for all of the relevant period and in line with our approach set out above, we will consider any period of temporary short time working imposed as a result of COVID-19 as part of the “relevant period”.”
Similarly, with reduced hours and possible pay cuts, earnings for 2020 will be impacted for many employees. Another condition of the conditions of KEEP is linked to emoluments, including ( FA 2019 provisions)”
… the total market value of all shares, in respect of which qualifying share options have been granted in the qualifying company or, in the qualifying holding company, to an employee or director does not exceed—
(i) €100,000 in any year of assessment,
(ii) €300,000 in all years of assessment, or
(iii) the amount of annual emoluments of the qualifying individual in the year of assessment in which the qualifying share option is granted,
IPSA asked Revenue to consider if this condition also could be relaxed for the period of COVID-19/ the tax year.
Summary extract: “We appreciate that qualifying KEEP options may already have been granted prior to a period of short time working which will ultimately result in cases where the value of the KEEP options granted will exceed the annual emoluments for 2020. In such cases (i.e. for options issued prior 15 March 2020), we will continue to view these as qualifying share options for the purposes of KEEP relief notwithstanding that the value of KEEP options granted may exceed the cash value of emoluments for 2020. However, in cases where qualifying KEEP options have yet to be granted, it is reasonable to expect that they must be granted by reference to the actual emoluments being paid in 2020.”
IPSA welcomes the Revenue response and hope that it will assist employees and employers alike to continue to retain and benefit from KEEP share options. Having said this, IPSA has asked Revenue to reconsider their final comment above. IPSA will continue to lobby Government on KEEP in order to make it more fit for purpose for SMEs and their employees.
SAYE & APSS
For SAYE, APSS (and the less common ESOTs) participation on similar terms can be by reference to “basic salary/ remuneration” ignoring certain fluctuating payments and also for salary forgone for APSS.
In circumstances where the employment has been retained but employees have taken a pay cut (either temporary or permanent), we have asked if Revenue can afford companies the flexibility to choose the reference basic salary/remuneration for example that excludes the pay reductions in 2020. We have indicated that Scheme Rules would need to be reviewed but we expect these will refer to a tax year of assessment. For ease a general Revenue statement to this effect rather than a need to amend Scheme Rules would in our opinion be most practical we suggest.
The TWSS also brings challenges to employers. We understand that companies are asking whether they can take a more co-ordinated scheme-wide approach, rather than an employee by employee basis, by taking a universal position on employee pay deductions across the board for their schemes.
IPSA has asked Revenue if , for example, companies could “suspend” the schemes completely for everyone for an initial period of, say, 12 weeks to mirror the proposed duration of the TWSS. This would mean that all contributions are stopped for everyone and will resume at the end of this period unless TWSS is extended. The position for share schemes would be revisited at that time.
IPSA awaits Revenue response to both proposals. We will keep our members posted.